Valuation of payroll processing service

Queries 764 views 5 replies

CA Viswanadh

Chartered Accountant

190 Points Joined September 2007

We are planning to outsource our payroll process to external agent.

As per the terms of the service the agent calculates the total salaries payable for the month and sends a statement for the salaries amount. Then he raises and service invoice for his charges. We pay both the amounts to the agent and then the agent actually disburses the salaries to the employees.

Please advise on the valuation of service,whether service tax is payable by the agent only on the service charge amount or on both service charge and salaries paid through him.

Replies (5)

vishnu

job

75 Points Joined January 2009

Hi the service tax is liable on both the salaries received by you for disbursing the same to employees and agency charges, as the service tax is liable on cash receivecd or receivable.

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

gross amount paid by you will be charged to service tax.

CA Viswanadh

Chartered Accountant

190 Points Joined September 2007

The actual service charge is only what is raised in the invoice.

Salaries are payable by the company and not by the agent. The agent only collects amount from us and disburses the same. The value of his service is what he charges to us.

Service charge approximately is Rs.2lakhs p.m. salaries disbursed by him would be in the range of Rs.40lakhs. As per your interpretation service tax is payable by him on Rs.42 lakhs i.e. Rs.4.3lakhs. If he pays Rs.4.3lakhs service tax on service charge of Rs.2lakhs what would he earn.

My doubt is whether the provisions of pure agent as in Rule 5(1)(2) of Valuation Rules can be invoked to provide relief.

CA Unnikrishnan Nair N

Chartered Accountant

2083 Points Joined February 2011

He is liable to pay service tax only on his service charges. Gross amount will be liable to tax if he is supplying the manpower as well. For the salary disbursement, he is only a pure agent . But be carefull to have proper documentation to convince the department.

U S Sharma

glidor@gmail.com

21068 Points Joined January 2010

Originally posted by : Viswanadh
	The actual service charge is only what is raised in the invoice. Salaries are payable by the company and not by the agent. The agent only collects amount from us and disburses the same. The value of his service is what he charges to us. Service charge approximately is Rs.2lakhs p.m. salaries disbursed by him would be in the range of 40lakhs. As per your interpretation service tax is payable by him on 42 lakhs i.e. Rs.4.3lakhs. If he pays Rs.4.3lakhs service tax on service charge of Rs.2lakhs what would he earn. My doubt is whether the provisions of pure agent as in Rule 5(1)(2) of Valuation Rules can be invoked to provide relief.

the query posted by you defines, as contractor work, and gross amount is liable for service tax as manpower recruitment service,

as later replied by yourself, if you have deducted ESI/PF/PT or other statuary deductions of the contract workers in line with regular employees of company, then no ST payable on "salary part"

if st is payable then he will collect service tax from you and will pay to department.