Service tax on agencies through whom contracted resources

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Mehul (Querist)
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31 March 2009 Hi Friends,

We place the resources on contract for 6 to 9 months through manpower agencies. This bill the salaries of resources + agency charges + service tax.

The service tax is charged on salaries of resources + agency chages.

My query is that provide the service for which they chage 5% agenct charges to us so service tax should only be on agency charges rather than entires salaries of resouces.

This increase our contracted employees' cost by 20% from thier salary base.

Can some body explain me why service charges leived on salary amount also and is there any remedy to save money from service tax burden on salary amount.

Regards,
Mehul.

Dayal

Dayal (Expert)
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31 March 2009 Service tax - determination of value rules are very clear on the subject.

It says gross amount charged to the client, which will include all statutory dues and salaries charged by the manpower agency.

For the service provider it is income, how he distributes his income down the line has no relevance to the statutory obligations of the service provider.

Therefore the agency is right in charging including the service charges.

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