service tax is included in Professional&consultancy ,and any other bill.TDS is deducted on total bill amount,but actually service tax is not an income to the receipient. Is it correct deducting TDS on servicetax
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regarding TDS deduction on professional&consultancy bills
Replies (19)
Tax has to be deducted on the amount including service tax, as the law says that TDS should be made on the entire bill amount. It doesnot specify to deduct tax only on your income.
As per circular no 715 dt 8.8.1995, reimbursement expenses can not be deducted from the total bill. Therefore tds will be deducted for the entire amount.
I received a sms message from Srigurukripa that vide Circular No. 4 Dated 28.4.2008 of CBDT no TDS on Service Tax element. I am actually searching for the circular in CAClub.
CA.K.R.T.KRISHNAMOORTHI.
income tax has issued circular no 4 dt 28-4-2008 in respect of rent . In which tds is not reuired to be deducted on service tax element of total rent but no such detail are mentioned regarding professional and consultancy fees
IS THIS CIRCULAR IS AVAILABLE ON THIS SIDE.
CIRCULAR NO. 4/2008, DATED 28-4-2008
Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194-I as
“rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
[F.No.275/73/2007-IT(B)]
CIRCULAR NO. 4/2008, DATED 28-4-2008
Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194-I as
“rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
[F.No.275/73/2007-IT(B)]
CIRCULAR NO. 4/2008, DATED 28-4-2008
Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194-I as
“rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
[F.No.275/73/2007-IT(B)]
In my opinion, the TDS can 't be imposed on Service Tax element. Service Provider acts as an agent for the Government to collect and deposit to their account. Service Taqx is not an income of the Service Provider.
In Circular No. 4/2008, CBDT has also agreed that TDS is not applicable on Service Tax element on Rental Income. The same vie hold good and as such no TDS to be deducted on the Service Tax.
Regards,
Kumar
Tax has to be deducted on the amount including service tax, as the law says that TDS should be made on the entire bill amount. It doesnot specify to deduct tax only on your income
BUT in case of rent for building .. service tax is not included while considering value of tds .. it should be only on the amount paid
With the advent of service tax, an interesting question has arisen whether tax is deductible at source under the IT Act even in respect of the service tax component of the professional fee/contract amount payable to the service provider/contractor.
Under Section 65 of the Finance Act, 1994, as amended up to 2001, a number of professional services, works contract and so on, attract service tax. The service provider will, in addition to the professional fee, include 5 per cent of the fees, as service tax in the bill, in terms of the obligation cast upon him by Section 68 of the Finance Act. The amount so collected should be credited to the government accountant within the 25th of the month following the month in which it was collected. The service provider has to file returns and any violation of these requirements will meet with penalties.
It is, therefore, clear that the service provider only acts as a collection agent for the Government. The money thus collected is instantly diverted by over-riding title. Therefore, the service-tax component of the moneys received by the service provider is not the income of the service provider.
Most of the taxable services come within the purview of Sections 194C, 194D, 194H, or 194J of the IT Act and the payer has to deduct tax at source while paying the service provider. Such payment will include service tax. It is clear from Section 190 of the IT Act that tax is deductible out of `income'. By now, the concept of income is so clear that receipts such as service tax can hardly be termed as income of the recipient. Where a receipt is not in the nature of income, the question of deduction of tax (by the payer) does not arise. Therefore, it appears that while paying towards taxable services, the payer has to deduct income tax at source only in respect of the net amount after excluding service tax. Section 194J also refers to ``professional fees payable''. Obviously, professional fees will not include service tax.
Though Section 194C requires deduction of tax ``out of sum payable'', it has to be read with Section 190. If the sum comprises a receipt which is patently not income and does not belong to the recipient, such as service tax, such sums should be excluded for the purpose of TDS. Even the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau [(1973)87ITR542] that sales tax is a part of the turnover, will not support a view that service tax is part of professional fees as that decision was given in a different context. Service tax law is unambiguous about the status of the moneys collected as it is in the hands of the service provider. So, let there be no TDS on service tax.
Under Section 65 of the Finance Act, 1994, as amended up to 2001, a number of professional services, works contract and so on, attract service tax. The service provider will, in addition to the professional fee, include 5 per cent of the fees, as service tax in the bill, in terms of the obligation cast upon him by Section 68 of the Finance Act. The amount so collected should be credited to the government accountant within the 25th of the month following the month in which it was collected. The service provider has to file returns and any violation of these requirements will meet with penalties.
It is, therefore, clear that the service provider only acts as a collection agent for the Government. The money thus collected is instantly diverted by over-riding title. Therefore, the service-tax component of the moneys received by the service provider is not the income of the service provider.
Most of the taxable services come within the purview of Sections 194C, 194D, 194H, or 194J of the IT Act and the payer has to deduct tax at source while paying the service provider. Such payment will include service tax. It is clear from Section 190 of the IT Act that tax is deductible out of `income'. By now, the concept of income is so clear that receipts such as service tax can hardly be termed as income of the recipient. Where a receipt is not in the nature of income, the question of deduction of tax (by the payer) does not arise. Therefore, it appears that while paying towards taxable services, the payer has to deduct income tax at source only in respect of the net amount after excluding service tax. Section 194J also refers to ``professional fees payable''. Obviously, professional fees will not include service tax.
Though Section 194C requires deduction of tax ``out of sum payable'', it has to be read with Section 190. If the sum comprises a receipt which is patently not income and does not belong to the recipient, such as service tax, such sums should be excluded for the purpose of TDS. Even the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau [(1973)87ITR542] that sales tax is a part of the turnover, will not support a view that service tax is part of professional fees as that decision was given in a different context. Service tax law is unambiguous about the status of the moneys collected as it is in the hands of the service provider. So, let there be no TDS on service tax.
Dear Amit,
I fully agree with your views and opinion.
In the absence of absolute clarity on this subject, different views are emerging.
1. TDS is deducted on the Gross Value (inclusive of Service Tax) of the Services provided u/s 194J of IT Act;
2. Service Tax is imposed on the reimbursements. Reimbursements are considered as part of the service provided u/s 194J.
The clarity on above will help many.
Regards,
Kumar
Please clarify whether TDS should be deducted on the service tax amount if the bill is falling under section 194-H, 194-C ?
Dear Amit,
Your contention is correct, but everybody wants to play safe and deduct TDS on service tax. It is high time the matter is correctly clarified by CBDT.
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