Is Tax Deduction at Source (TDS) applicable on Service Tax? Read the complete article to know all about TDS on Service Tax as per new rule/latest circular issued by the Government.
Is TDS applicable on Service Tax?
Many people may have this confusion that whether TDS on Service Tax is also liable to be deducted or not. Here is the answer to your question that “Whether TDS applicable on the amount inclusive of service tax or on the amount exclusive of service tax?”.
TDS on Service Tax
TDS is one of the modes of collecting Income Tax from taxpayers by the Income Tax Department, wherein, the Payer deducts specified amount of tax before making payment to the payee and then deposits the amount to the credit of the Govt. The concept of TDS has been growing leaps and bounds in India, as it checks tax evasion. This method of collection accounts for more than 50% of total income tax collection. TDS is being deducted under different sections for different kinds of income as per the provisions of Income Tax Act, 1961.
The problem comes during the payment for the service that attracts TDS provisions as well as on which the Government of India imposed Service Tax.
TDS is to be deducted from the recipient’s income. Here, Service tax is not an income of the service provider. He would be collecting service tax from the service receiver and depositing that amount with the government of India. So, the service tax collected by the service provider is not an income to him and he is merely acting as an agent of the Government.
So, the TDS should not be deducted from the amount inclusive of service tax and should be deducted from the amount exclusive of service tax. According to the latest circular issued by the Government, “If the service tax amount is shown separately, TDS is to be deducted from the amount exclusive of service tax“.
In most of the cases, Service Tax is disclosed separately in the Invoice. In such cases, TDS would be deducted from the amount exclusive of service tax. If the Service Tax amount is not disclosed separately in the invoice, TDS would be deducted from the total amount i.e. the amount inclusive of Service Tax.
Value of services (excl of service tax) = Rs. 15,00,000
Service tax on Rs. 15,00,000 @ 15% = Rs. 2,25,000
Total = 15,00,000 + 2,25,000 = Rs. 17,25,000
Here, the TDS should not be deducted from Rs. 17,25,000 (i.e. the amount inclusive of service tax) and should be deducted from Rs. 15,00,000 (i.e. the amount exclusive of service tax).
Earlier, i.e. as per old rule, TDS on Service Tax was to be deducted from the amount inclusive of Service Tax except Rent. This rule has now changed and the government has introduced new rule as mentioned above.
For complete information read the circular attached below.