TDS on service tax which is to be claimed as input credit.

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Q. > Please Help: TDS on service tax which is to be claimed as input credit.

2839 views • Question added Feb 14, 2012 • Income Tax • By PRIYANKA , CA , GREATER NOIDA

My assesseee takes credit of service tax on services utilized by him in provision of output services, like Service Tax on Royalty, franchise fees, consutancy fees paid etc. Now my question is ..whether TDS is to be deducted on the gross amount of bill or amount excluding service tax..?? General view is that it should be deducted on gross value..but isnt that not fair...as in our books also we will be booking expense net of service tax amount, as service tax amount is taken as credit..here are the figures..: Royalty: Rs 10000/- Service tax Rs. Rs. 1030/- Now tell me whether TDS to be deducted on Rs 10000/- or on Rs 11030/- , as in our books also we will be booking expense by Rs 10000/- and will take 1030/- to service tax A/c....Pls explain with proper reasoning.

4 Answers

answered Feb 14, 2012 by Mrattunjay , New Delhi

TDS require to deduct on gross amount i.e 11030 and expense is 10000 , CENVAT Credit is 1030 because TDS payable always liable to payment amount

answered Feb 15, 2012 by CA Gaurav Kumar Agarwal , East Delhi

See, while reading the Act & Rules we do not have to think abt the true & fairness of the act.
hence whatever the act states, we have to follow the same with considering the judgment.
hence, tds should be deducted in rs.11030/-

answered Mar 01, 2012 by Ketan Samdani , V V Nagar

Tax should be deducted on gross amount i.e. 11030/- irrespective of fact that the assessee is taking the service tax input cerdit. In case of rent tax is to be deducted only on net amount not o service tax in all otre cases tax is to be deducted on gross amount.

answered Sep 10, 2012 by PRIYANKA , GREATER NOIDA

thank you all for ur opinion on this issue.

Comments

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irfan ansari

14-Feb-2012 , 06:27:07 pm

in this case TDS is to be deducted at the value of service excluding service tax because income tax don't allow us to charge tax on tax.

Jitesh Golani

14-Feb-2012 , 08:52:39 pm

According to the interpretation of CBDT, TDS u/s 194C should be deducted inclusive of the service tax amount as the section itself specifies "any sums payable". So in their view amount is to be deducted inclusive of service tax. But in my opinion it should be deducted exclusive of service tax, as TDS is nothing but deduction of income tax at source and income tax can be levied only on income, as service tax amount is to be deposited to the government it is not a part of the income and so TDS should be charged on Rs. 10000 However, in practical life to avoid hassels with the department, we advise clients to deduct tax on gross amount. Hope this solves your query

Mrattunjay

14-Feb-2012 , 10:01:43 pm

TDS will be deducted on Gross amount i.e. 11030 and cenvat is 1030 for Service tax. Explanation: Always tax payable on payble amount to other party i.e. 11030 and booking of expense is 10000 & cenvat credit 1030 and payable to Third party is 11030

CA Gaurav Kumar Agarwal

15-Feb-2012 , 11:23:19 am

See while readin our act 7 rules, we not req. to think the fairness of act therefore wht the act states, we have to follow the same. therefore deduct tds on rs 11030/-

irfan ansari

16-Feb-2012 , 02:52:25 pm

The issue of TDS on service tax is getting hotter by the day. This issue got fuel with the issuance of a circular by the CBDT. In this circular, board has clarified that tax deduction at source (TDS) under sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax. [Circular no. 4 dated 28-4-2008] After this clarification, every body was of the view that the principle enunciated by this circular is applicable to all the payments made by the assessee and accordingly no TDS is deductible from on the part of service tax whether it is professional's bill or contractor's bill. But, to settle the issue, CBDT has issued another clarification vide circular F. NO. 275/73/2007IT(B) dated 30-6-2008. In circular CBDT has clarified that the scope of benefit of Circular no. 4 dated 28-4-2008 can not be extended to the payment made under section 194J (Fees for professional and technical services). Therefore, TDS is to be deducted on the gross amount inclusive of service tax where the payment is being made u/s 194J. From the reading of both the clarifications, the reasons for two stands in two situations can be discussed as under: Chapter XVII - Part B - Deduction at source Section 194J - Sub Section (1) starts as: (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— xxxxxxx Section 194I - the provisions of this section starts as: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall………… xxxxxxxxx Section 194J speaks about deduction of tax at source (TDS) on any sum which is paid to the recipient. But, Section 194I speaks about the deduction of tax at source (TDS) on any income paid as rent.