Service tax and tds (urgent)
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
04 April 2013
‘A’ is the recipient of the services from the territories outside India and TDS is borne by A only. Kindly advice A, wr.t. applicability and quantum of service tax and accounting treatment to TDS borne by him and allow ability of such expenses for the purpose of income tax assessment.
‘A’ is the recipient of the services from the territories outside India and TDS is borne by A only. Kindly advice A, wr.t. applicability and quantum of service tax and accounting treatment to TDS borne by him and allow ability of such expenses for the purpose of income tax assessment.
04 April 2013
There are Place of provision rules under service tax, under which if the particular case satisfies the conditions mentioned in the place of provision rules in export of service then there is no question of applicability of service tax.
RULE 6A (1) - The provision of any service provided or agreed to be provided shall be treated
as export of service when
a. the provider of service is located in the taxable territory
b. the recipient of service is located outside India
c. the service is not a service specified in the section 66D of the Act
d. the place of provision of the service is outside India
e. the payment for such service has been received by the provider of service in
convertible foreign exchange; and
f. the provider of service and recipient of service are not merely establishment of
a distinct person in accordance with item (b) of Explanation 2 of clause (44) of
section 65B of the Act.
By default, the place of provision of service is the place of recepient of service.
Therefore if the service is export of service then the question of service tax does not arise as per charging section 66B.
If the service tax is not applicable then, do the normal treatment of TDS in respect of such payment. i.e.
Creditor/expenses payable DR.
To TDS payable
To Bank.
but you need to obtain certificate from CA in form 15CB before making the payment and fill the form 15CA and upload form 15CA at tin-nsdl website.
RULE 6A (1) - The provision of any service provided or agreed to be provided shall be treated
as export of service when
a. the provider of service is located in the taxable territory
b. the recipient of service is located outside India
c. the service is not a service specified in the section 66D of the Act
d. the place of provision of the service is outside India
e. the payment for such service has been received by the provider of service in
convertible foreign exchange; and
f. the provider of service and recipient of service are not merely establishment of
a distinct person in accordance with item (b) of Explanation 2 of clause (44) of
section 65B of the Act.
By default, the place of provision of service is the place of recepient of service.
Therefore if the service is export of service then the question of service tax does not arise as per charging section 66B.
If the service tax is not applicable then, do the normal treatment of TDS in respect of such payment. i.e.
Creditor/expenses payable DR.
To TDS payable
To Bank.
but you need to obtain certificate from CA in form 15CB before making the payment and fill the form 15CA and upload form 15CA at tin-nsdl website.
Querist : Anonymous
Querist :
Anonymous
(Querist)
22 May 2013
Please sir read the question again carefully?
24 July 2025
Got it — this is about a recipient (“A”) receiving services from outside India, with TDS borne by “A” himself. Here's a clear explanation covering Service Tax, TDS applicability, accounting treatment, and income tax implications for “A”:
1. Service Tax Applicability on Imported Services
When services are imported (received from outside India), Reverse Charge Mechanism (RCM) applies under Indian Service Tax law (Finance Act, 1994, as applicable pre-GST).
The recipient (A) is liable to pay service tax on the value of the imported service at the applicable rate (e.g., 12.36% or as per the period's applicable rate).
This tax must be deposited by A directly to the government.
2. TDS (Tax Deducted at Source) on Imported Services
Under Section 195 of Income Tax Act, any payment to a non-resident for services is subject to TDS.
Since “A” is making the payment to a foreign entity, A is required to deduct TDS at the prescribed rate (typically 10% on fees for technical services, but can vary).
If “TDS is borne by A”, it means A is paying the tax deducted amount in addition to the service fee, i.e., grossing up.
3. Accounting Treatment of TDS borne by A
The TDS borne by A (gross-up amount) is an additional expense to A.
For example, if the foreign service charge is $100 and TDS is $10, but A pays $110 to ensure the foreign party gets $100 net, then $10 is an additional expense.
This TDS expense should be recorded as part of the cost of imported services in A's books.
4. Allowability of Such Expenses for Income Tax Assessment
As per Indian Income Tax laws:
The service tax paid under RCM is allowed as expense (though not creditable as input tax).
The grossed-up TDS expense is allowed as deductible business expenditure, since it’s incurred wholly and exclusively for business.
However, actual TDS deducted and deposited can be claimed as a tax credit against income tax liability.
Summary Table
Aspect Explanation
Service Tax on Imported Services Payable by A under Reverse Charge Mechanism.
TDS Deduction Deduct by A on payments to foreign service provider.
TDS Borne by A (Gross-up) Additional expense; added to service cost in books.
Income Tax Allowance Both service tax and grossed-up TDS expense are allowable deductions.
TDS Credit TDS deducted can be claimed as credit in income tax returns.
1. Service Tax Applicability on Imported Services
When services are imported (received from outside India), Reverse Charge Mechanism (RCM) applies under Indian Service Tax law (Finance Act, 1994, as applicable pre-GST).
The recipient (A) is liable to pay service tax on the value of the imported service at the applicable rate (e.g., 12.36% or as per the period's applicable rate).
This tax must be deposited by A directly to the government.
2. TDS (Tax Deducted at Source) on Imported Services
Under Section 195 of Income Tax Act, any payment to a non-resident for services is subject to TDS.
Since “A” is making the payment to a foreign entity, A is required to deduct TDS at the prescribed rate (typically 10% on fees for technical services, but can vary).
If “TDS is borne by A”, it means A is paying the tax deducted amount in addition to the service fee, i.e., grossing up.
3. Accounting Treatment of TDS borne by A
The TDS borne by A (gross-up amount) is an additional expense to A.
For example, if the foreign service charge is $100 and TDS is $10, but A pays $110 to ensure the foreign party gets $100 net, then $10 is an additional expense.
This TDS expense should be recorded as part of the cost of imported services in A's books.
4. Allowability of Such Expenses for Income Tax Assessment
As per Indian Income Tax laws:
The service tax paid under RCM is allowed as expense (though not creditable as input tax).
The grossed-up TDS expense is allowed as deductible business expenditure, since it’s incurred wholly and exclusively for business.
However, actual TDS deducted and deposited can be claimed as a tax credit against income tax liability.
Summary Table
Aspect Explanation
Service Tax on Imported Services Payable by A under Reverse Charge Mechanism.
TDS Deduction Deduct by A on payments to foreign service provider.
TDS Borne by A (Gross-up) Additional expense; added to service cost in books.
Income Tax Allowance Both service tax and grossed-up TDS expense are allowable deductions.
TDS Credit TDS deducted can be claimed as credit in income tax returns.
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