Service tax & tds on foreign consultancy

This query is : Resolved

CA Shyam Sunder Agarwal (Querist)
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30 August 2011 Dear friends,

Your advise is required in the matter of payment of Service Tax and TDS on Foreign consultancy.
Say we have made payment of $1000 in the month of Aug'11 towards consultancy fees to one of our US party. Applicable Service tax & TDS rate on such consultancy is 10% & 20% respectively. Please tell me how much I need to deposit towards Service Tax & TDS in the month of Sep'11. Exchange rate Is Rs 45.00

Thanks & regards,

U S Sharma

U S Sharma (Expert)
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01 September 2011 as TDS part is also paid by you, it would go for $1250 ( less TDS 20% = 250)and you have to pay service tax on $1250

CA Shyam Sunder Agarwal

CA Shyam Sunder Agarwal (Querist)
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02 September 2011
Thanks for your advice. I think your opinion regarding TDS is correct. But what I get opinion from the other regarding valuation for chargebility of Service Tax is that Service Tax will be paid on the actual consideration paid to the foreign party. Since, TDS will not form part of the actual consideration, Service Tax will be charged on the Net Amount i.e Rs. 1000.

Section 66A read with rule 7 (1) of the Service Tax Act fortifies this view. It states that_:

" The value of taxable service received under the provisions of Sec 66A, shall be such amount as equal to the actual consideration charged for the services provided or to be provided."

Kindly clarify whether I am correct and should go with which view?

U S Sharma

U S Sharma (Expert)
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02 September 2011 your account will reflect 1250 towards service received, and TDS 250 on that, you can not account TDS paid by yourself on behalf of foreigner, so audit will take this as a valid case for booking evasion. coz for this purpose gross amount is taxable.

if your accounting system allow you to bifurcate the amount charged by the service provider and TDS payable thereon at diff heads, then TDS would not be liable for service tax.

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