Dear
Professional Colleagues
At
the time of my first audit during the CA articleship period, my first question
to the respective senior is why they are deducting TDS on Service Tax? Service
Tax is not the Income of the vendor infact it is his liability towards the
government. Moreover TDS is part of "Pay As You Earn Scheme" and
Service tax is not the earning of vendor while he is mere acting as an agent of
the government.
My
senior replied you are right but as per the TDS section, deductee have to
deduct tax on payment made to vendor. So there is TDS on Service Tax also. I
didn't say anything further and change my prospective while auditing books of
accounts. But still I was thinking - Why it is that So????????? How there can
be Tax on Tax? It seems to be ridiculous but no one is above law.
After
six years of the crazy questions of grooming mind, Government of India awaken
and CBDT bring out the Circular that there is no requirement to DEDUCT TAX ON
SERVICE TAX PORTION, if it is separately mentioned in the invoice.
INCOME TAX - Circular No. 1/2014 - (DEDUCTION
OF TAX AT SOURCE - RENT – CLARIFICATION OF TDS UNDER CHAPTER XVII-B ON SERVICE
TAX COMPRISED OF PAYMENTS MADE TO RESIDENTS), dated 13.01.2014.
Extracts
of Circular is as follows
The Board
had issued a Circular No. 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.
Attention
of CBDT has also been drawn to the judgment 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.
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.
Copy of Circular is attached
for your kind perusal.
Regards
Gaurav Arya
Chartered Accountant
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