According to Indian Tax Laws, the receiver of service is required to do two things at the time of making any payment:-
1. Pay Service Tax on the services received
2. Deduct TDS on the payment made
However, the confusion is whether TDS has to be deducted on amount including service tax or on amount excluding service tax.
For example:-
| Value of services | = | Rs. 1,00,000 |
| Service tax on Rs. 1,00,000 @ 12.36% | = | Rs. 12,360 |
| Total | = | Rs. 1,12,360 |
So, whether TDS should be deducted on Rs. 1,00,000 (i.e. amount exclusive of Service Tax) or Rs. 1,12,360 (i.e. amount inclusive of Service Tax) ?
Governments explanation of TDS on Service Tax
The CBDT vide Circular No. 4/2008 dated 28-04-2008 announced that at the time of payment of rent i.e. payments under section 194I, TDS should be deducted on the amount exclusive of service tax as the landlord is only acting as a collecting agent for government for collecting the service tax. Therefore, TDS on rent should be deducted on the amount without including service tax.
However for payments other than rent, TDS should be deducted on amount inclusive of service tax (i.e. on Rs. 1,12,360 as per above example).
Click here to read the announcement released by government on the above subject.
TDSMAN’s Point of View
TDS should be deducted only from the income of the recipient. The service tax charged on the services is not the income as the same has to be submitted to the government. So logically TDS should be deducted from the income exclusive of service tax. Sadly, as per government rules, on payments other than rent the TDS has to be deducted on total amount (Amount inclusive of service tax).
Source: Income Tax Website, CharteredClub.com
I would like to draw your attention towards Circular No. 1/2014 [F.NO. 275I59t20′,t2-IT(B)], Dated 13.01.2014 vide which it is clarified by CBDT that “wherever in terms of 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.
pls see 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 thepayments made to residents