TDS on Service Tax Componenet

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					TDS not to be Deducted on Service Tax
Component shown Separately
CBDT clarifies TDS on Service Tax Amount

Whether to deduct TDS on Service Tax Amount? This question had always put
deductor in difficulty. The question always comes that whether TDS is to be
deducted on the entire amount of the invoice i.e. including service tax or only on
the payment made towards services i.e. excluding service tax.
Since there was no clarification on this, deductor, to be in safer side tends to
deduct TDS on the entire invoice amount including service tax except in the case
of rent under section 194I.

Circular No. 4/2008 : CBDT had earlier issued a Circular No. 4/2008 dated
28.04.2008 clarifying that TDS is to be deducted under section 194I of the
Income-tax Act, 1961 on the amount of rent paid/payable without including the
service tax amount.

Representations/letters have been received by CBDT seeking clarification
whether such principle can be extended to other provisions of the Act also.

Verdict on the same question was given by the Rajasthan High Court dated
01.07.2013, in the case of CIT(TDS) Jaipur vs Rajasthan Urban
Infrastructure – 2013-TIOL-663-HC-RAJ-IT. Court held that if as per the terms
of the agreement between the payer and the payee, the amount of service tax is
to be paid separately and was not included in the fees for professional
services or technical services, no TDS is required to be made on the service tax
component u/s 194J of the Act.
Circular 01/2014 : Following the above judgment, CBDT vice Circular 01/2014
dated 13.01.2014 has decided that wherever in terms of the agreement/
contract between the payer and the payee, the service tax component
comprised in the amount payable to a resident is indicated separately, tax shall
be deducted at source on the amount paid/payable without including such
service tax amount.

TDS on Service Tax under New Rule

Two points have to be complied to escape from deducting TDS on
service Tax:

   1. Applicable only to resident deductee; and
   2. Service Tax is to be Shown Separately in the Invoice.

Let's see how this new rule works:

Service Tax shown separately             Service Tax not shown Separately
Value of Services:     40,00,000         Value of Services:        44,94,400
Service Tax @ 12.36%: 4,94,400           Total Invoice Amount: 44,94,400
Total Invoice Amount: 44,94,400          (Including Service Tax)
TDS @ 10%               4,00,000         TDS @ 10%                 4,49,440
(Only on Value of Services)              (On Value of Services + Service Tax
Before this Circular even if you have shown service tax separately, TDS is to be
deducted as per case 2 except under section 194I.

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Sanyam Jain Sanyam Jain