No TDS on Service Tax component
abhay.c...@whiteinc.in
Greetings!
The Central Board of Direct Taxes has clarified hide Circular No. 1/ 2014 dated January 13, 2014 that TDS is not required to be deducted on the Service Tax component of any invoice in cases where the terms of the agreement/ contract between the payer and service provider indicate separately the service tax component comprised in the amount payable to a resident.
Hence going forward, TDS should be applied only on the service component and not on the service tax element thereon, where service tax has been agreed to be paid separately. This change would entail changes in the accounting system and appropriate disclosures in the TDS returns and certificates to ensure that no mismatches occur. The cash flow of the companies would also marginally improve.
The text of the Circular is reproduced here-in-below:
CIRCULAR NO. 1/2014 [, DATED 13-1-2014
Subject: TDS under Chapter XVII-B of the Income-tax Act, 1961 on service tax component comprised in the payments made to residents - clarification regarding
The Board had issued a CircularNo.4/2008 dated 28-04-2008 wherein it was clarified that tax is to be deducted at source under section 194-I of the Income-tax Act, 1961 (hereafter referred to as 'the Act'), on the amount of rent paid/payable without including the service tax component. Representations/letters has been received seeking clarification whether such principle can be extended to other provisions of the Act also.
2. Attention of CBDT has also been drawn to the judgement of the Hon'ble Rajasthan High Court dated 1-7-2013, in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), holding 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.
3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the Act, the Board 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 under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component.
4. This circular may be brought to the notice of all officer for compliance
F.NO.275/59/2012-IT(B)]
Regards.
CA/ CS Abhay Chandalia
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