TDS on Service Tax Amount under New Rule

By | February 4, 2014

 TDS not to be Deducted on Service Tax Component shown Separately

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.

Lets see how this new rule works:

Service Tax shown separatelyService Tax not shown Separately
Value of Services:        40,00,000

Service Tax @ 12.36%:  4,94,400

Total Invoice Amount:   44,94,400

TDS @ 10%                   4,00,000

(Only on Value of Services)

Value of Services:        44,94,400

Total Invoice Amount:  44,94,400

(Including Service Tax)

TDS @ 10%                  4,49,440

(On Value of Services + Service Tax Amount)

Before this Circular even if you have shown service tax separately, TDS is to be deducted as per case 2 except under section 194I.

Circular 01/2014 dated 13.01.2014 reproduced hereunder:

Download (PDF, 28KB)

Leave a Reply

Your email address will not be published. Required fields are marked *