Navigating Service Tax and TDS for Startup Recruitment Agencies: When to Invoice and Pay?

Invoice Details and Tax Clarifications for Startup Recruitment Agency

I am working in a startup manpower recruitment agency. The invoice will be as follows:
- 8.33% on Salary = 23,070
- Service Tax = 2,851
- Total net amount = 25,921

Our client will deduct 10% of the net amount, i.e., 2,592.1 on 25,921. Therefore, we shall receive 23,328. The client pays the bill after the candidate completes 6 months of service, but the invoice will be raised on the date of joining of the candidate.

Since our agency is a startup proprietorship firm with a turnover of less than 10 Lakhs, we are still registered under service tax.

Clarifications Needed

1. How much service tax should we pay to the government on the above invoice?
2. Since the client pays after 6 months, when should we raise the invoice? When should we pay the service tax, whether after receiving the payment or immediately after raising the invoice?
3. How can we claim TDS and when will we come under income tax?

Kindly share your knowledge on the above. It would be a great favor to us.

Regards,
RVR

In your case, as your service is related to manpower, there is something called the reverse charge mechanism. Under the reverse charge mechanism, you should charge a service tax of 25% on 12.36%. The rest of the amount should be paid directly to the service tax department by the service receiver.

In reference to your queries:

1. If you are receiving the Service Tax amount of Rs. 2851, then you should pay the entire amount of Rs. 2851 to the service tax department immediately upon generating the invoice for the client.

2. Regardless of whether you receive the amount or not, you are required to remit the same to the department. Ideally, you should raise the invoice as soon as the manpower process is completed. You can request your client to pay at least 50% of the invoice amount immediately upon raising the invoice and the balance after 6 months. Alternatively, you can prepare another contract stating that upon completion of the process, you will raise only a proforma invoice, and after 6 months, you will raise the invoice and receive the payment.

3. The TDS amount deducted will be remitted directly to the department. Every 3 months, they should issue Form 16A to you. You are required to prepare the income and expenditure upon completion of each financial year and submit the returns.

Thank you.