Dear Mr Raj Kumar,
Suppose a person charges consultancy fee of Rs.10,000/- and gives bill for Rs.11,236/- (including 12.36% service tax of Rs.1,236) to his client. Client has to deduct TDS of 10% while making payment. Now the question is on which amount he has to deduct TDS - on Rs.10,000 or on 11,236? Logically TDS should not be applicable on service tax of Rs.1,236/- since it goes to the government. Till now the view taken by the IT Deptt was that TDS should be deducted on full bill value (including service tax). Now based on decision of Rajasthan High Court not it has been clarified that TDS is not applicable on service tax amount charged separately in the Bill. Earlier people had to wait for long for getting refund due to higher rate of TDS. Now its effect will be that lesser amount will be blocked in TDS. In the above example TDS earlier was Rs.1,123.60 which will now be reduced to Rs.1,000/-.
Thanks for the lucid and clear Explanation and the illustrative Example.
As a member who has looked forward to such timely notifications posted by you; it has helped me; and I am sure would be helpful to others who are not very conversant with Tax matters.
I would sincerely appreciate if you include such original write-ups, wherever necessary, in your posts in future too
Thanks PCA !
I have been seeing posts on this matter all day on various sites.
But i was not able to locate the original notification anywhere.
You have saved me a lot of trouble :-)
One clarification that i would like to add here :
The above notification specifically says that the agreement between the parties must mention service tax separately.
So the contracts must be reviewed to ensure the IT department does not catch on a technicality during the assessment to create problems
Appreciate the post. Some relevant information is as follows:
CBDT had issued a Circular No. 4/2008 dated 28.04.2008, wherein it was clarified that tax is to be deducted at source under Section 194-I of the Income-tax Act, 1961 on the amount of rent paid/payable without including the service tax component.
Representations/letters have been received seeking clarification whether such principle can be extended to other provisions of the Act also.
Board had actually clarified in Letter F.No. 275/73/2007-IT(B), dated 30-6-2008 as follows:
Deduction of Tax at source on Service Tax - The payments made under section 194-I differ significantly from payment made under section 194J in the way that in the case of 194-I TDS has to be deducted on any income paid as rent. However, in the case of section 194J TDS has to be deducted on any sum paid as professional and technical fees. The Board had decided to exclude TDS on service tax component on rental payment because it was construed that service tax payment cannot be regarded as income of the landlord. Since section 194J covers any sum paid, therefore the Board has decided not to extend the scope of Circular No. 4/2008, dated April 28, 2008 to such payment under section 194J.
Anyway Board seems to have forgotten this letter. They are reminded of a recent judgement of the Rajasthan High Court dated 01.07.2013, in the case of CIT(TDS) Jaipur vs Rajasthan Urban Infrastructure - 2013-TIOL-663-HC-RAJ-IT, holding that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act.
On re-examination of the matter, in exercise of the powers conferred under section 119 of the Act, the Board has decided that wherever in terms of the agreement/ contract between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without including such service tax component.
(CBDT Circular No. 1/2014 in F. No.275/59/2012-IT(B), Dated: January 13, 2014).
Incidentally some interesting(ed) titbits here (for laughs ?)
CESTAT has no Funds for basic requirements (Reminded of Mr.Barak Obama ?)
OUR report CESTAT Mumbai has no money to dispatch notices/letters in DDT 2272-15.01.2014 was only a tip of the proverbial iceberg. Much before the Mumbai Circular, the Chennai CESTAT had issued a notice dated 06.12.2013 to the effect that, due to acute shortage of funds and due to mandatory reduction in the budget allocation, notices for hearing, appeal memos, defect notices etc., would be sent by ordinary post and Cause List from the CESTAT website/Notice Board may be viewed for all purposes .
Enquiry by TIOL reporters has revealed that all the Benches of the CESTAT are facing similar problem of acute shortage of funds and postage is not the only casualty; they have no money to pay for telephone bills, electricity bills, hiring cars for the Members….. They are deep in debts to several agencies - Public and Private and are running the show by requesting the debtors to bear with them till the financial position improves and whenever some funds are received, they are immediately exhausted for paying outstanding bills and again they are in debts. It seems some bills pertaining to May 2013 are yet to be paid.
What will happen if the Electricity Board cuts off power, the Telephone Company disconnects the phones and the Cabs Company stops the cars for the Hon'ble Members. Will they close down the Tribunal because they can't pay the bills?
Drastic expenditure cuts are being put in place like in one Bench, they have stopped typing the orders in double space and are now doing it in single space to save paper and postage!
There is a mandatory ten percent cut in expenditure imposed by the Government in all departments. This cut is blindly extended to the Tribunal also, where it is neither practically feasible nor physically possible. The number of appeals and applications received this year are nearly more than double those received in the previous year; then how do you implement a ten percent cut in expenditure?
CESTAT need not be in such pathetic condition - after all it collects a lot of money as fees from private litigants - if the amount of fees collected is not enough to meet the expenditure, let them increase the fees, but let the Tribunal retain the fees for its expenditure.
The Government treats the CESTAT as a subordinate office of the Revenue Department and not a very important one at that - and that is the reason for this kind of poverty for the Tribunal, which deals with the richest cases in India. The Tribunal cannot be at the mercy of the Revenue Department for its funds - we should devise an alternate mechanism - there should be some financial autonomy for the Tribunal. The whole issue boils down to a couple of crores for lack of which we are facing all these problems. Advocate Gururaj of Bangalore says in our Message Board that Counsels and litigants can contribute - maybe we should ask Commissioners to contribute immediately - after all they cause all the litigation in the Tribunal.
Arrests under Service Tax
WITH the VCES ending some Service Tax wings have become active in arresting alleged evaders.
We understand that a Service Tax assessee who failed to pay the first instalment under VCES has been arrested in Mumbai for alleged Service Tax evasion of nearly three Crores rupees.
Another assessee has been arrested in Bangalore for alleged evasion of about Rs. 1.16 Crores.
No Budget in February
IT is now clear that there would be no Budget presentation on February 28 as usual. The Government is planning an extended winter session of Parliament from February 5 to 21 and the vote on account is planned on February 17. So, there would be no budget exercises and the babus in North Block can relax. Of course this does not mean the Government cannot announce sops even without a budget.
There is going to be a constitutional crisis when Parliament meets on February 5. As per Article 87 of the Constitution, at the commencement of the first session of each year, the President is supposed to address a Joint sitting of both the Houses. But the BJP Government did not follow this provision in 2004. Will the President address the First session of the year and the last session of the present LokSabha?
Salary account is a facility that is provided by the bank to its clients to enable people to operate bank accounts without having a minimum balance or average quarterly balance limits. There is no law saying that these accounts will only be given to salaried employees. However, ensure that the transfer to consultant fees is not done in the same transaction as the salary transfer else, it will be considered as salary by pf and other government departments.
My query is regarding contractor payments (Sec. 194C). The vendor's invoice amount is Rs. 15 Lacs with ST that makes to 1685400. My senior has told me to retain his service tax and pay him later after he produces ST Challan. Meanwhile, he has told me to release his rest of the payment. So my actual query is whether I should deduct 1% TDS (since this vendor is proprietorship firm) on 15 Lacs or total amount- 1685400.
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