Tds on vat invoice

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2014 Hi Experts,
I want some clarity on deduction of Tax U/S 194C on Tax Invoice (CST & VAT). I am not taking any input credit of those articles, since this are not mentianed in my Sales Tax RC Copy. I am deducting TDS on Net Payable amount of the Invoice.
Kindly give me some more clarity on the above subject matter.
Regards
Rupesh Sharma

Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2014 Hi Experts,
Please help in resolving my confusion on my post dated24th Jan 2014.TDS ON VAT Invoice.

Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2014 Hi Experts,
I want some clarity on deduction of Tax U/S 194C on Tax Invoice (CST & VAT). I am not taking any input credit of those articles, since this are not mentianed in my Sales Tax RC Copy. I am deducting TDS on Net Payable amount of the Invoice.
Kindly give me some more clarity on the above subject matter.
Regards
Rupesh Sharma

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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27 July 2025 Hi Rupesh,

Regarding **TDS deduction under Section 194C on invoices that include VAT or CST**, here’s the clarification:

---

### Key points on TDS deduction on VAT/CST inclusive invoices:

1. **TDS under Section 194C** applies on the **amount paid or payable for transport contract services**, i.e., the *consideration for the contract*.

2. **VAT/CST is a tax collected on behalf of the government**, and **not part of the contract consideration** for services or goods supplied.

3. Hence, **TDS should be deducted on the amount excluding VAT/CST** — i.e., on the **net payable amount exclusive of VAT/CST**.

4. This is consistent with the general principle that TDS is not deducted on taxes collected by the vendor (like VAT, CST, Service Tax, GST), as these taxes are passed on to the government and not income to the vendor.

5. If you are deducting TDS on the *net payable amount* after excluding VAT/CST, your approach is **correct**.

---

### Legal backing & references:

* CBDT Circulars and Income Tax Act do not include VAT/CST in the definition of income or consideration on which TDS is deducted.
* Courts have generally held that taxes collected on behalf of government should not be subject to TDS.
* Section 194C refers to **payment to contractors** for work done, and the tax applies to **consideration**, not tax components like VAT.

---

### Summary:

| Invoice Amount Components | TDS Deduction Under Sec 194C |
| ----------------------------- | ---------------------------- |
| Contract value / service fees | Deduct TDS |
| VAT / CST | No TDS deduction |

---

If you want, I can help draft a note or communication to your vendors clarifying that TDS will be deducted only on the contract amount excluding VAT/CST.

---

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