Tds applicability

Originally posted by : CA Altaf Gohil
	I would like to know that wether TDS  is applicable on testing & inspection charges paid to Material supplier ? Supplier has included the same in bill.

i think tds not appliable because vat are involved in these bill

VAT is not charged by the supplier because the material is supplied in SEZ.

TDS will not be applicable because it is a supply of material and its inspection in same bill and material is getting the exemption from vat due to SEZ.

Get a declaration form from SEZ which has to be to be submitted to the Sales Tax department.

If the invoice contain both sale and service .Then TDs is apply on service testing etc

I think TDS would not be applicable but still there is involvement of Testing & Inspection on which TDS is deducted under Contractor Heading 194C.On checking whether Amount exceeds prescribed limits given u/s 194C, we can't determine because service Charges is part of Sale Price. Theoretically TDS would be deducted on Testing & Inspection Charges but when comes to practically concept TDS could not be determinable. Although, We should also give importance to Income Tax Officials. So, Deduction of TDS would be require only if circumstances allow us to calculate Separately Testing & Inspection charges separately. Regards Arun Arora 9891217257/9015184257

I think TDS would not be applicable but still there is involvement of Testing & Inspection on which TDS is deducted under Contractor Heading 194C.On checking whether Amount exceeds prescribed limits given u/s 194C, we can't determine because service Charges is part of Sale Price. Theoretically TDS would be deducted on Testing & Inspection Charges but when comes to practically concept TDS could not be determinable. Although, We should also give importance to Income Tax Officials. So, Deduction of TDS would be require only if circumstances allow us to calculate Separately Testing & Inspection charges separately. Regards Arun Arora 9891217257/9015184257

still I am confuse about this

Hi There was a circular issued by board in 2012 - circular 9/2012 to clarify the representations received from various sections of industry regarding matter of TDS on Gas Transportation charges paid by the purchaser of natural gas to the seller. The board clarified that the manner of raising the sales bill ( whether the transportation charges are embedded in the cost of gas or shown separately) does not alter the basic nature of such contract which is essentially contract of sale and not a works contract. Hence, TDS not applicable. Though it is not the same case, the key take away is that if the services are incidental to the main contract of sale, it won't alter the very nature of contract. Now in the present case, if the inspection and testing services are incidental to the main contract of supply, there should be no TDS as per the above interpretation.

There might be another school of thoughts as well. If the inspection and testing charges form major part of the bill or the same are provided at the specific request of the purchaser and are not incedental to the contract of supply of material, it might be argued that the TDS is required to be deducted. In that case, if you are individual or HUF and were not subject to tax audit last year, no TDS is required to be deducted. But if its otherwise, TDS shall be required to be deducted u/s 194C @ 1%/2% as the case may be.

I feel katik's reasoning to be sound and I agree with him.