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If the services received by deductor from deductee are exempt, then there is no requirement for tax deduction under GST.

Classification of service— In the instant case, applicant has sought advance ruling on below issue— 1) Whether applicant's activities, i.e. Operation & maintenance of structures/components, Staff Quarters, Pump Chamber, Boundary Wall, Distribution System, Tube wells, Pumping Machinery, OHSR etc under Water Supply Scheme, Samalkha Town, Haryana & Operation & maintenance of various sizes of sewer lines, repair of civil structures, supply of consumables etc., qualify to be a composite supply of goods and services and exempt from GST under entry No. 3A of Notification No. 12/2017-CT(R), 2) Whether the service recipient, Public Health Department, State of Haryana, is required to deduct TDS under Section 51 of the CGST Act, 2017 given the fact that as per applicant's version his aforementioned services are exempt from GST Held that— The work carried by the applicant is a Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply provided to the State Government by way of an activity in relation to the function entrusted to a Panchayat under Article 243G of the Constitution or in relation to the function entrusted to a Municipality under Article 243WArticle 243W of the Constitution and thus exempt under GST. As per Section 51 of the CGST Act, 2017, a government entity is entitled to deduct tax at source under GST at the rate of 1% on payments made to the supplier of taxable goods and/or services or both, under a contract if it exceeds Rs. 2,50,000. In the present case, Public Health Department being a government entity and applicant being a contractor in terms of work contract allotted to them, TDS in terms of Goods & service tax is liable to be deducted but as the services are exempt from GST, hence there is no requirement to deduct tax at source in this case.