Service tax on payments to foreign parties net of tax

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CA Sarthak Jain

Practice

38 Points Posted on 07 June 2013

Where service receiver in India make payment to service provider situated outside India and the agreement between them requires the receipient to make full payment, as agreed under the contract, to the provider of service and bear the incidence of amount to be deducted as TDS i.e. paid TDS from own pocket, then whether service tax is to be computed on such TDS which is paid by the recepient from his own pocket to the govt.???

EX. Suppose Invoice amount = USD 100 (equivalent to Rs. 1000)

TDS to be deducted on above = Rs 100 (paid by receipient out of own pocket)

Amount paid to service provider, in terms of agreement = USD 100 (equivaent Rs. 1000)

Now, whether for service tax, service tax o be paid under reverse charge = ST rate * (RS. 1000 + Rs. 100) ????

Please clarify......

Replies (4)

CA Sujeet Kumar

Self-Practice

625 Points Posted on 07 June 2013

Service tax on 1100 as total expenses to the Indian party is 1100

CA Sarthak Jain

Practice

38 Points Posted on 09 June 2013

Pls provide legal backing in support of ur suggestion. That wud b more useful nd bring clarity to the issue...

Nirav Worah

CHARTERED ACCOUNTANT

415 Points Posted on 09 June 2013

Payment of tax out of pockets for service provider will be deemed as indirect consideration paid to service provider. Further, in case of service provider TDS is deemed as receipt. Applying this concept, service tax under reverse charge should be paid on total payment + tax paid on behalf. i.e 1100.

Regards,

Nirav Worah

CA Sarthak Jain

Practice

38 Points Posted on 09 June 2013

I understand that the tax paid by the service provider out of his own pocket on behalf of service receiver falls within the gamut of consideration as defined under the Service tax laws. But the service tax is levied with reference to gross amount charged. In the present instance, the service provider charged only the contract value, and therefore the service tax liability should be limited to such value only and not beyond that.

Further, deeming TDS as income receipt is concept under section 198 of the Income Tax Act which has nothing to do with the service tax law. Even though, it is a consideration as per the service tax law, the consideration in itself can not go beyond what has been charged for the service provided.

Pls suggest.........