my sister in law is itself engaged in running a HR consulting comany on which they arecharged @ 10% TDS u/s 194 J

Dear All,

We are deviating from facts:

fact 1: There is contract of Supply of Manpower. If it is so then it is not important the nature of busines conducted by company supplying manpower, they may be Staffing Company or HR Consulting company.

fact 2: There should be formal agreement between two compay for suplly of manpower. TDS is applicable on the nature of payments made by the assesse, In case of Manpwoer supply contract there is Contract for supply of Manpower between Staffing Co/HR Consulting company and the Assessee.

So this arrangement automatically falls under the contarctual agreement for supply of manpower.

Moreover Section 194C of Income Tax Act itself recognises the same and covers such contract specifically who are we to interpret it & give distinct conclusions:

[Payments to contractors]

194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor⁴⁸) for carrying out any work⁴⁸ (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall..........

HR consulting comany are charged @ 10% TDS u/s 194 J, is totally correct, but do they Majorly supply Manpower, I belive no.

And if we see arrangement of Manpower Supply, e.g. Salary Amount 1 Lac, Service Charge 10,000/- and Service Tax on total amount Rs. 11,330/-. Total Bill amount comes to Rs. 1,21,330/-

If TDS deducted @ 10% Rs.12,133/- net amount comes in hand to Rs. 1,09,197/-.

Of which Salary of Rs. 1,00,000/- wil be paid to employee & company will be left with Rs.9,197/- out of which company has to also pay service tax of Rs.11,330/-

So Company will be doing loss after paying service tax.

Manpower Supply contract operates on very thin Marging 0f 7 - 10%, for them it is not sustainable to do business if TDS @ 10% is applicable and this is the reason why government has come up with ammendment in Provison of S/194C of Income Tax to include such transections.

It is also practice in Industry to deduct TDS @ 2% only in case of contract of Supply of Manpower. I have consulted top 5 company in who is doing staffing Services where in TDS @ 2% is deucted by their client.

Please note TDS @ 2% is applicable only in case of Contract for Supply of Manpower irrespective of nature if business of Supllier of Manpower.

I will revert further if any different view is presented till by for Now.

Originally posted by : Naresh Kumar
	avaniji and deepa mam thanks to both of you for your inputs. just to add, we are not paying any finder fee (meaning fee towards identifying the employees to the agency). it is only the monthly salary payable + markup. i respect the views of all the members here. since it is going to be a policy decision for us, can any of the members let me know if they have actually known any staffing-outsourcing company having any policies w.r.t treatment for taxation. as mentioned by me previously, i checked with 3~4 staffing companies and all of them have said it is at 2% on entire invoice value after (excluding Service Tax). these companies are having atleast 10,000+ people in their payroll.

Please note whatever may be the view TDS to be deducted on Service Tax Portion also at safer side, since S/194 C does not specifically give exclusion.

Let me clarify that Q.12 of Circular : No. 715, dated 8-8-1995 talks about recritment Agency.

Staffing Services company providing labour on contract does not fall under definition of Recruitment Agency.

Manpoer Recruitment Agency & Manpoer Supply Agencies both are different altogether which is recognised by Income Tax Act & Service Tax also.

It Specificaly says   "Provisions of section 194C apply to a contract for carrying out any work including supply of labour for carrying out any work"

Originally posted by : Anuraag Sharma
	1. TDS is nothing related with inflows & outflows, it is chrged on "Income". 2. HR consulting company providing such workers come under the category of recruitment agency and not under the category of manpower supply agency. 3. Examples of manpower supply agencies are Securiy Services, Roadways Buses & Trucks Operators (e.g. UPSRTC), a replication of sending employees on dedputation... 4. In manpower supply agency the relation of employer and employee exists between agency and the employee and there is a contract between the agency and the company fr supply of such person. 5. However, in case of recruitment agencies (the only best example is HR consulting company) the relation of employer and employee exists between the company and the employee. And The Hr consulting company, the agency, has just performed a professional service for you by just searching th Best person suiting ur employment criterias.... such services whether named as contract or otherwise are just treated as rendering of Professional Services. 6. The HR consulting company, having requisite skills and competence to select the best candidate for your employment and vacancy criteria is just rendering its services as professional 7.  The HR consulting company is never engaged in hiring employees except as required for rendering thier own professional services.....they just select a best candidate suiting the company's criteria.....it is soleley the decision of the company whether to engage or not to engage. However, in each such cases the company has to pay a certain "Fees" to the onsulting comapny. 8. In case of manpower supply agency(e.g. security agencies)the payment of salary chain work as under: Company ---> pays money----> agency : referred as payment towards contract. : "Revenue" for manpower agency Agency ----> pays salary----> employee : referred as salary payment made by the agency to employee : expenses for the agency.   The sum paid by the company to agency & by the agency to the company "differs"....   The agency is bound to pay salry to employees irrespectively whther the company has paid them the amt of revenue or not 9. In Ur example payment of salary to employee by the consulting company is just the "Reimbursement" of payment actually made by the company. they are just paying Mr x on ur behalf....   The chain works as under:   Payment by company to agency:  1.  Payment for Fees Rs. 10,000 + ST @ 10.3% : revenue for the consulting comapny (Rs. 10,000 is gross revenue to be shown) Salary payment Rs. 1 lakh + ST @ 10.3% : Indirect Income to be shown net of expenses in the nature of reimbursements to epmloyee. (rs. 1lakh gross indirect income- reimbursed to employee, may or may not be different) Payment by Agency to Mr. X 1. Salary payment Rs. 1lakh , if received from the comapny - to be deducted from indirect income and shown as net.... : Nature : reimbursement.   If in any month company doesnt make a payment of Rs. 1,00,000 + ST @ 10.3% to the agency, the agency is not bound to pat Rs. 1 lakh to Mr. X... 10. Two different Acts may have different meaning for the same word...so there is nothing "common" in two different Acts....   Conclusion- U R REQUIRED TO DEDUCT TDS @ 10%...... REFERENCE - Circular : No. 715, dated 8-8-1995. Question No. 12.

I dont agree with point 9.

Salary to employee by the consulting company is NOT just the "Reimbursement" of payment actually made by the company.

There is three different parties to Contract, One is Principal employer, Second is Contractor - HR Company & Third Mr. X an employee of Contractor (HR Company).

Whatever be the arrangement there is direct contract between Principal Employer & HR Company.

dear friends - thanks once again to all. thanks Vaibhav sir for the elaboration.

Originally posted by : Rahul Agarwal
	Dear Naresh, As per the nature of transaction, it is definitely a contractual obligation. Therefore on Rs 110300 deduct u/s 194C and on Rs 11030 (including Service Tax) u/s 194J   regards, Rahul

Very beneficial..

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Domestic Help Palm Beach

HI

Few lines of judicial analysis of Hon’ble Justice Pradeep Parikh under verdict of United Hotels Ltd. v ITO [2005] 2 SOT 267 (Delhi)

let us consider the facts of the case. Clause (a) of the Explanation to Section 194J postulates that the person rendering professional services must have received the fees in the course of carrying on any of the professions mentioned therein. In the present appeal, it is not the case of the Revenue that the persons deputed in the assesses hotel were carrying on any profession. If an accounts executive was deputed, he was doing the duty as was assigned to him by his employer. It cannot be said that he was carrying on the profession of accountancy and that what he received were fees in the course of carrying on such profession. In fact, what he received was merely salary from the employer for doing the duty assigned to him by the employer. Similarly, if an engineer was deputed, the engineer was not rendering any technical consultancy to the assesse. He was merely doing his duty as an employee,.

Thus no 194j tds on salary part.as per HIgh court

Second and most important part, it has always been observed that questionnaire of Circular No. 715 dated 8 August 1995 always misleads  Clients, who keep same  veiw towards  recruitment(hiring) and staffing (contract employment) despite of  several verdict has cleared that both are not same and  top of that ITO has cleared their view towards recruitment PFB

PFB  Clause (k) of Sub-section 105 of Section 65 of the Act 8

[‘Explanation

.—For the removal of doubts, it is hereby declared

that for the purposes of this sub-clause, recruitment or supply of

manpower  services in relation to pre-recruitment screening, verification of the credentials a

nd antecedents of the candidate and

authenticity of documents submitted by the candidate;].

3  In the light of above definition it is now comprehensive that payment to staffing industry is entirely different to payment to recruitment agency ,Therefore  the questionnaire of Circular No. 715 dated 8 August 1995  is irrelevant since it talks about recruitment  payment which is under194J .

Do let me know if  you want high court decision wherin it has been cxleared that recrutment and staffing are different business morever doesnt it look logically correct.

Mam ,can you please help me in finding the information you have provided on any Website or law or tax book.

Regards