No TDS on service tax on payments made/ due to resident payee if service tax component is indicated separately in the agreement/ contract.
Supporting decision about NO TDS on service tax :
In the recent verdict of the Hon’bleRajasthan High Court, the Commissioner of Income Tax (TDS), Jaipur Vs. M/s. Rajasthan UrbanInfrastructure held that if the terms and conditions of the agreementbetween the payer and the payee has already been agreed for, the amount of service tax will be paid separately and not to be included in the fees forprofessional services or technical services, than no TDS isrequired to be made on the service tax component u/s 194J (i.e. under Professional Services).
Earlier Announcement
Earlier it was clarified by the departmentvia circular that tax needs to be deducted at source U/S 194I of the Act, on the amount of rent paid or payable without including the amount of service tax.Representations/letters has been filed to CBDT seekingclarification whether such principle can be extended to other provisions of the Act also or not.
CBDT has examined the matter afresh and clarified vide Circular No. 1/2014 dated 1312014 as follow : –“TDS under Chapter XVIIB of the Income tax Act, 1961 on service tax component comprised of payments made to residents”that whenever in terms and conditions of the agreement or contract made in between the payer and thepayee, and the service tax amount payable to a resident is indicated separately, than TDS shall be deducted only on the amount paid/ payable without including suchservice tax component which is shown separately.
Hence after the amendment, the circular shall apply not only to the section 194(J) but will also be applicable to the other sections such as 194 (C), 194 (D), 194 (G), 194 (H), 194 (I), payment made to Resident all other sections covered under Chapter VII B of the Income Tax Act, 1961.
Impact on Industry
This circular has provided a great relief to the society further, it was also seen as a Bold step by the Central Board of Direct Taxes towards to people of the society. As the payers are taxed twice on the same income and therefore by after consideration by the CBDT and considering the judgement of the Rajasthan High Court, the circular has been released by the CBDT.
Conclusion
To get the exemption of TDS on service Tax following points are need to be kept in mind by the assesse:
- Payment should be made to resident only. That means, if, Payment is being made to the Non-Resident Person than TDS shall be deducted on the amount including the service tax component.
- It is to be mentioned in the Contract / Term sheet between both the parties that Service Tax amount shall be indicated separately.
Therefore, if the conditions given above are fulfilled than there is no need to deduct the TDS on the Service Tax Component.
Literal Interpretation of Circular
On the first part, the same should be applicable on prospectively basis however the courts can interpret otherwise as follow:
The circular has come after the judgement of the the Hon’ble High Court in case of Jaipur Vs. Rajasthan Urban Infrastructure (Dated 01-07-2013), which holds that if as per the terms of the agreement between the payer and the payee, the amount of service tax component is to be paid separately and was not included in the fees for technical or professional services, no TDS is required to be made on the service tax component u/s 194J of the Act.
Earlier, CBDT vide its Circular No. 4/2008 (dated 28.04.2008) held that TDS deduction under section 194 I of the Income Tax Act would be required to be made on the amount of Rent Paid / Payable without including the Service Tax. However, sooner just after the 2 months CBDT again released its circular (dated 30.06.2008) decided not to extend the scope of circular No. 4/2008 to payment u/s 194 J of the income tax act since it covers any sum paid.
Example for TDS on service tax:
Suppose you receive bill for professional service of Rs. 1,00,000.
Service tax rate is 14%. Tds rate is 10% for professional services.
| Description | Amount |
| Services | 100000 |
| Service tax | 14000 |
| Total bill | 114000 |
| TDS rate | 10% |
| Amount for the purpose of calculation of TDS | 100000 |
| TDS | 10000 |
| Total payment =total bill less TDS | 114000-10000= 104000 |
I hope above table clarify doubts about TDS on service tax. However, if you have any question, ask via comment.
Madam, iam a corporate supplier ,our firm is partnership. i am purchasing garment gift voucher @ 950 /- and we are selling to our client @ 1025/- .is there any service charge for above transaction.
This is sell purchase transaction and no service tax is applicable.
i am a proprietor providing services as man power supply & renting a motor vehicle to corporate. As previously 25 % service tax we use to charge but from april 15 we are not charging any service tax to them. so whether we should file nil return. And whether this 2 services turnover should be clubbed for 10 lac limit. we have previously taken registration no. for both but surrendered the no for renting vehicle .The two units are under different name but the proprietor is one. we have the no. for manpower supply. and how this abatement criteria is there regarding 50 % pl. guide us. So that how we should charge to the corporate.as we are having two different business name whether 2 registration is required & if two registration is required then also the turnover of both will be clubbed for 10 lac limit.
Take single registration for both the service and turnover will be clubbed for small service provider exemption. For taxable value, consider value before abatement or reverse charge mechanism.
Read my article for full information,
https://taxmasala.in/small-service-provider-exemption/
Really helpful Information.in the above scenario how much service tax should beneficiary pay. 14000?
Service tax amount is Rs.14000. It does not change.
Madam i am a painting contractor doing the labour contract to one builder .shall I pay s.t.
hello madem. i have a rental property for which i get rent and cam charges. for both i am paying the service tax ..is there any deduction which can be done while paying service tax?
Hello Mam,,
I had hired one company to design mobile app for my business, They had sent be invoice on 30 th sep 2015.for Rs. 325000 inclusive of service tax 14 %.
I already paid advance Rs. 200000, and didn’t deduct any TDS on that amount. Now they had sent me the final invoice but of previous date. 30 Sep 2015.
Now can you please tell me what amount I need to deduct as TDS and what will the last date to deposit the same to Incomce Tax Dep.or it is already been passed.