Service tax & Tds
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
19 December 2010
Dear Experts,
One of the client having mfg unit, is receiving bills for the payment
to the contactor ( security gurad, etc...) as under:
charges for the month Rs.1,00,000
Add: S Tax 10.3% Rs. 10,300
TOTAL Rs. 1,10,300
Add: Reimbursed Exp Rs. 50,000
(Fixed)
BILL TOTAL Rs. 1,60,300
On the above bill party deducts TDS on 1,10,300 @ 2%.
My question is :
1) Is the bill raised correct ?
2) Is tds deduction being correctly followed?
THNX IN ADVANCE
One of the client having mfg unit, is receiving bills for the payment
to the contactor ( security gurad, etc...) as under:
charges for the month Rs.1,00,000
Add: S Tax 10.3% Rs. 10,300
TOTAL Rs. 1,10,300
Add: Reimbursed Exp Rs. 50,000
(Fixed)
BILL TOTAL Rs. 1,60,300
On the above bill party deducts TDS on 1,10,300 @ 2%.
My question is :
1) Is the bill raised correct ?
2) Is tds deduction being correctly followed?
THNX IN ADVANCE
19 December 2010
1) No. service tax is to be levied on reimbursement amount also.
2) No.Section 194C refers to "any sum", thereby reimbursement of actual expenses cannot be deducted from the bill and that such reimbursement will also have to be taken into account in deducting tax at source.
Fixed reimbursement may contain an element of profit which may again worsen the situation.
2) No.Section 194C refers to "any sum", thereby reimbursement of actual expenses cannot be deducted from the bill and that such reimbursement will also have to be taken into account in deducting tax at source.
Fixed reimbursement may contain an element of profit which may again worsen the situation.
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Querist : Anonymous
Querist :
Anonymous
(Querist)
03 January 2011
Dear Expert,
My clients argument is that:
1) Why there will be tds on reimbursed amount, as many of the other firms are following , not to deduct tds on reimbursed amount.
2) Even on service & maintenance chg ( of security & guards), tds deduction is @ 2% U/S 194C, which differs with my argument to deduct tds @ 10& u/s 194J, AS the client argues that for guard service there is no professional or technical involvement is there.?
Thnx in advance
My clients argument is that:
1) Why there will be tds on reimbursed amount, as many of the other firms are following , not to deduct tds on reimbursed amount.
2) Even on service & maintenance chg ( of security & guards), tds deduction is @ 2% U/S 194C, which differs with my argument to deduct tds @ 10& u/s 194J, AS the client argues that for guard service there is no professional or technical involvement is there.?
Thnx in advance
25 July 2025
Great questions! Let's break down the two main issues: **service tax on reimbursement** and **TDS deduction on security guard services**.
---
### 1) **Is the bill raised correctly?**
* The bill amount is Rs. 1,00,000 for security services.
* Service tax @ 10.3% is charged on Rs. 1,00,000 = Rs. 10,300.
* Reimbursement of Rs. 50,000 is added separately.
* Total billed Rs. 1,60,300.
**Issue:**
* **Service tax must be charged on the total amount including reimbursed expenses if the reimbursement is a fixed amount and not an actual pass-through expense.**
* If the reimbursement is a **fixed amount**, it is considered part of the taxable value and service tax applies.
* If it is a **pure reimbursement of expenses paid on behalf of the client (actual and supported by bills), service tax may not be applicable** on that part.
**So:**
* If the reimbursement is **fixed** (not actual expenses), service tax should be charged on the entire Rs. 1,50,000 (Rs. 1,00,000 + Rs. 50,000), not just Rs. 1,00,000.
---
### 2) **Is the TDS deduction correctly followed?**
* TDS is deducted @ 2% on Rs. 1,10,300.
* The question is whether TDS should be deducted on Rs. 1,10,300 or on Rs. 1,60,300.
---
#### TDS on reimbursement amount:
* As per **Section 194C (TDS on Contract Payments)**, the wordings "any sum" indicate **TDS should be deducted on the total amount payable to the contractor**, including reimbursements, **if those reimbursements are not actual pass-through expenses**.
* **If reimbursement is fixed and includes profit element**, TDS applies on total amount.
* If reimbursement is actual and supported by bills (pass-through), then TDS can be deducted on only the service part.
---
#### TDS rate: 2% or 10%
* Your client is deducting **2% under Section 194C**, which is correct for contract payments like security services.
* **Section 194J (10%)** applies to professional services, technical services, etc. Since security services are **contractual work**, not professional services, **Section 194C applies**.
---
### **Summary:**
| Point | Correct Approach |
| ---------------------------- | ---------------------------------------------------------------------------------------------------- |
| Service tax on reimbursement | Charge service tax on total value including fixed reimbursements. Actual reimbursed expenses exempt. |
| TDS deduction base | Deduct TDS on total amount payable (including reimbursement if fixed). |
| TDS rate | 2% under Section 194C for security contracts is correct, not 10% under 194J. |
---
If your client wants to avoid service tax and TDS on reimbursements, they should make sure the reimbursement is **actual expenses only, supported by bills**, and not a fixed amount.
---
Want me to help draft a letter to explain this to your client?
---
### 1) **Is the bill raised correctly?**
* The bill amount is Rs. 1,00,000 for security services.
* Service tax @ 10.3% is charged on Rs. 1,00,000 = Rs. 10,300.
* Reimbursement of Rs. 50,000 is added separately.
* Total billed Rs. 1,60,300.
**Issue:**
* **Service tax must be charged on the total amount including reimbursed expenses if the reimbursement is a fixed amount and not an actual pass-through expense.**
* If the reimbursement is a **fixed amount**, it is considered part of the taxable value and service tax applies.
* If it is a **pure reimbursement of expenses paid on behalf of the client (actual and supported by bills), service tax may not be applicable** on that part.
**So:**
* If the reimbursement is **fixed** (not actual expenses), service tax should be charged on the entire Rs. 1,50,000 (Rs. 1,00,000 + Rs. 50,000), not just Rs. 1,00,000.
---
### 2) **Is the TDS deduction correctly followed?**
* TDS is deducted @ 2% on Rs. 1,10,300.
* The question is whether TDS should be deducted on Rs. 1,10,300 or on Rs. 1,60,300.
---
#### TDS on reimbursement amount:
* As per **Section 194C (TDS on Contract Payments)**, the wordings "any sum" indicate **TDS should be deducted on the total amount payable to the contractor**, including reimbursements, **if those reimbursements are not actual pass-through expenses**.
* **If reimbursement is fixed and includes profit element**, TDS applies on total amount.
* If reimbursement is actual and supported by bills (pass-through), then TDS can be deducted on only the service part.
---
#### TDS rate: 2% or 10%
* Your client is deducting **2% under Section 194C**, which is correct for contract payments like security services.
* **Section 194J (10%)** applies to professional services, technical services, etc. Since security services are **contractual work**, not professional services, **Section 194C applies**.
---
### **Summary:**
| Point | Correct Approach |
| ---------------------------- | ---------------------------------------------------------------------------------------------------- |
| Service tax on reimbursement | Charge service tax on total value including fixed reimbursements. Actual reimbursed expenses exempt. |
| TDS deduction base | Deduct TDS on total amount payable (including reimbursement if fixed). |
| TDS rate | 2% under Section 194C for security contracts is correct, not 10% under 194J. |
---
If your client wants to avoid service tax and TDS on reimbursements, they should make sure the reimbursement is **actual expenses only, supported by bills**, and not a fixed amount.
---
Want me to help draft a letter to explain this to your client?
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