Tax deduction at source(TDS) under GST - Inter State supply

[Divya Vundipalli]

Section 51 of the Central Goods and Services Tax Act, 2017 (Act) is the provision relating to Tax deduction at Source (TDS) under GST, as per which certain recipients (‘customer’), as mentioned in the said provision and also notified vide various notifications, are required to deduct 1 % from payment made or credited to supplier of taxable goods or services and remit to the Government exchequer. This provision has come into force w.e.f. 01-10-2018[1].

However, there is a confusion in the industry that no GST is required to be deducted under section 51(1) of the Act, if IGST is charged by the vendor, more so due to an FAQ in this regard, wherein it is stated that no TDS would be applicable in case of inter State supplies. Link of such FAQ is attached for your reference[2].

It is a known fact that FAQs do not have any legal binding. In this backdrop, let us examine whether in fact this FAQ is in line with the provisions or whether there is a requirement to deduct tax under GST even for IGST charged transactions.

Provision

As per proviso to section 51(1) of the Act, there is an exception for TDS. Extract of proviso is as follows:

“Provided that no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.”

From the above one can understand that TDS is NOT required to be deducted if:

1. Location of supplier and,
2. Place of supply is one State, and
3. When such State is different from State where the customer is registered.

Basis the above understanding let us examine in various scenarios whether TDS would be required under GST.

Sl. No	Location of customer (LOC)	Location of supplier (LOS)	Place of supply (POS)	Tax charged by supplier	Applicability of deduction of TDS	Remarks
1	Telangana	Andhra Pradesh	Andhra Pradesh	CGST and APGST	NA	Since LOS and POS are in same State that is different from LOC
2	Telangana	Telangana	Andhra Pradesh	IGST	Applicable	Since POS and LOS are NOT in same State
3	Telangana	Maharashtra	Andhra Pradesh	IGST	Applicable	Since POS and LOS are NOT in same State.
4	Telangana	Telangana	Telangana	CGST and TSGST	Applicable	Since POS and LOS are NOT in a State different than the customer registration State.

From the above table, it is clear that even though IGST or CGST and SGST is charged by the vendor, TDS would be applicable in all the cases except in the case where the vendor charges CGST and SGST of a State that is different from LOC, i.e. in S. No.1 in the above table where the customer is located in Telangana but the vendor charge CGST and SGST of AP.

Another aspect to note is that any TDS done under GST would be available in the cash ledger of the vendor which can be used by such vendor to either pay off his GST liabilities and if he is not able to use it then the same can be claimed as a refund u/s 54 of the Act.

The views expressed above are strictly personal and cannot be regarded as a legal advice/opinion. For any feedback/queries please write to [email protected] and [email protected]

 

[1] Notification No.  50/2018 – Central Tax dated 13-09-2018

[2] https://gst.kar.nic.in/FAQsTDSunderGST.aspx