TDS on Service Tax not to be deducted: Amt exclusive of Service Tax

As per Indian Tax Laws, at the time of making any a payment, the receiver of service is required to do 2 things:-

  1. Pay Service Tax on the services received
  2. Deduct TDS on the payment made

However a confusion which has arose is whether TDS on Service Tax is also liable to be deducted or TDS on service tax is not liable to be deducted. In other words, should TDS be deducted on the amount inclusive of service tax or should TDS be deducted on the amount exclusive of service tax.

The above confusion can be explained with the help of an example. For eg:-

Value of services (excl of service tax) Rs. 15,00,000
Service tax on Rs. 15,00,000 @ 12.36% Rs. 1,85,400
Total Rs. 16,85,400
TDS ???

TDS is to be deducted at the time of making the payment. However, the confusion here is that whether TDS should be deducted on Rs. 15,00,000 (i.e. amount exclusive of Service Tax) or Rs. 16,85,400 (i.e. amount inclusive of Service Tax)

tds service tax TDS on Service Tax not to be deducted: Amt exclusive of Service Tax

TDS on Service Tax – New Rule

Logically speaking, TDS is to be deducted from the income of the recipient. Service tax is not an income of the service provider as the service provider would be collecting service tax from the service receiver and depositing this amount with the govt. So, the service tax collected is not an income of the service provider and the service provider is merely acting as an agent of the Govt.

So, the logically TDS should not be deducted from the amount inclusive of service tax (i.e. Rs. 16,85,000) and should be deducted from the amount exclusive of service tax (i.e. Rs. 15,00,000)

And the Govt in its Circular No. 1/2014 dated 13th Jan 2014 has also said the same. According to the latest circular issued by the Govt in this regard, TDS is to be deducted on the amount exclusive of service tax if the service tax amount is shown separately. As in most of the cases, Service Tax Amount is disclosed separately in the Invoice, TDS in all such cases would be deducted on the amount exclusive of service tax.

However, in case the Service Tax amount is not disclosed separately in the invoice (rare case), TDS in such cases would be deducted on the total amount i.e. the amount inclusive of Service Tax.

TDS on Service Tax – Old Rule

Earlier TDS on Service Tax was to be deducted on the amount inclusive of Service Tax for all payments except Rent. In case of Rent, TDS was to be deducted on amount exclusive of Service Tax and in all other cases, TDS was deducted on the amount inclusive of Service Tax (Announced by Govt vide Letter F. No. 275/73/2007-IT(B) dated 30-06-2008)

However, this rule has now changed and the new rule on TDS on Service Tax is now applicable as stated above which states that TDS should be deducted on the amount exclusive of Service Tax.

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