Why TDS under GST is not applicable in case where Location of Supplier and Place of Supply are in a state different from Location of Recipient?

Proviso to Section 51(1) of CGST Act provides for exception from applicability of TDS. There, it provides that : TDS not applicable if

1. Location of the Supplier (LoS) and Place of Supply (PoS) are in the same state and
2. Location of the Recipient of Supply (LoR) is another state

Then a doubt strikes in our mind that why “it is” as “it is” ? Does any “Conceptual conflict” or “Practical difficulty” exist and that’s why the department excludes the provision from its applicability? Let’s see!

We all know the differences and implications linked with Electronic Credit Ledger and Electronic Cash Ledger. Therefore, it makes a huge impact on how ‘Tax deducted u/s.51(1)’ credited to the “Deductee”. CGST Act, 2017 itself clarified vide Section 51(5) which makes it very clear that Tax deducted u/s.51(1) shall be available as credit in Electronic Cash Ledger. Hence, we try to provide a picture below on how the mechanism works.

Okay, we just recapitulate the process. Now, let’s break the suspense.

Why, T.D.S provisions not applicable in cases where LoS and PoS are in one state whereas LoR is in different states!

Assume, GFX is registered in Telangana and the Government department is registered in Andhrapradesh. GFX provides Taxable services worth Rs.300000(Excluding GST@18%) to that Government department of Andhrapradesh in relation to its Building located in Telangana (Like AP Building in Telangana Secretariat). As Immovable property is located in Telangana, POS is in Telangana as per PoS u/s.12(3)(a).

Now, Assume there exists no such provision and TDS is applicable in the above case. (I.e. Consider as if no such provision exists in CGST Act, 2017)

• First of all, It is an Intra state supply as LoS and PoS are in same state
• Hence, Bill particulars are as follows.

• Next, TDS u/s.51 applicable as Value of Supply > 2.5 lakhs
• Deductor – Government Department, A.P (As making payment)
• TDS to be made@2% which equals to
  1. C.G.S.T – Rs.3000 and T.G.S.T – Rs.3000
• Now, the Government department of A.P is required to discharge its TDS Obligation by creating challan
• Lets try to create challan for the above liability as follows

• Please take note of rounded area with blue pen. There, you found as APSGST. Meaning,: TDS discharged through GSTR-7 will be credited into AP-Treasury.
• Now, the real problem arises. How, Telangana Government allows GFX to take credit in Electronic Cash Ledger for the amount paid to A.P Treasury. It’s not possible. To make possible, A.P Government has to transfer such T.D.S amount of Rs.3000 to Telangana Government and then, Adjustment has to be made for Debit in Electronic Cash Ledger in A.P S.G.S.T account and give credit in Electronic Cash Ledger of Telangana S.G.S.T account.
• Indeed, the government allows you to make payment  within 10 days and after that further five days allowed to file G.S.T.R-7. Hence, it would take upto 15days to reflect the scenario to the government. Then, within 5 days, the government has to make all those stuff and make it available to GFX in its Electronic Cash Ledger.
• It involves a cumbersome process and the Government may want to get rid of all those cumbersome processes. That’s why, government may relax TDS provision from its applicability. That’s one of the reasons why, CGST Act,2017 may provide for relaxation from the applicability of TDS Provisions.

To Summarize

1. There exists a practical implication in GST Portal to deal with these issues.
2. That’s why they may intend not to complicate the issue.
3. There exists a myth that TDS is not applicable in case of Inter-state supplies and Indeed, some people thought it would only be applicable in case of Goods alone.
4. Hence, TDS is not applicable only in a case where, LOS and POS are in a state which is different from state where Service recipient is registered.

Thank you,

Ayyappa,

GFX Lead Consultant and Advisor.

Disclaimer: All views expressed in this article are my own and do not represent the opinions of any entity whatsoever with which I have been, am now or will be affiliated. Therefore, it does not constitute legal opinion and does not bind anyone about correctness of the expressions and opinions.