Please clarify TDS to be deducted from gross or net amount i.e before service tax amount or after service tax amount. Please provide any case law.
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Service tax is collected on behalf of government, as per provisions relating to service tax, it is diverted at source and does not accrue as income of recepient.Therefore, service tax is not a charge, consideration or fees etc. for services rendered.Therefore, income tax should not be deducted from the element of service tax. Even otherwise the amount of service tax is not consideration for any contract, it is not rent of property let out, it is not commission or brokerage, it is not any 'fees' of professional or technical person.
Unfortunately CBDT have taken stands in relation to rent and other payments differently and in contradictory manner. In case of rent it is considered by CBDT that landlord collect it on behalf of government therefore tax need not be deducted, however, in case of other payments, stand taken is that tax should be deducted even on Service tax amount. You may refer to articles on this subject on this website.
As far as TDS is concerned u/s 194C or 194J if you clearly read the section, it is mentioned that "Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of..." here you may note it is referred "ANY SUM" it doesn't specify any fee so we may interpret as sum include fee plus service tax, till date no such notification is prescribed for deduction of tax is inclusive of service tax or exclusive of service tax except in the case of RENT u/s 194I. Hence in the light of plain reading of the act it is a safer way to deduct the tax on the gross bill which is inclusive of service tax.
after service tax amount
After reading answer of Mr. Debashish Sahoo, I once again read the provisions. In S. 194C we need to read further in the section and find the use of words "for carrying out any work .... , in pursuance of a contract....". The party pays to contractor the consideration fixed for contract and service tax is paid only if it is leviable. Suppose service tax is increased, reduced or removed, the contractor will charge the same accordingly if applicable.
In S. 194J words used are "any sum by way of fees for professional services / fees for technical services / royalty and any sum referred to in S. 28 (va) etc.
Service tax is not fees for services, again it will be paid if it is leviable and not otherwise.
Furthermore as per provisions of ST service tax collected is diverted at source- it has to be deposited with government.
In S. 194H also words used are 'by way of commission...'
Therefore, ST collected is not income of person who collect it. The circular on Rent can be considered as latest one and showing latest consideration by CBDT that service tax is collected for GOI.
Any circular in force requiring TDS on Service tax element is therefore contrary to the provisions of S. 194C, 194 I and 194J. Therefore such circualr is not binding on assessee. Default in lower TDS can be constly in view of s. 40(1)(ia), therefore, one may adopt play safe approach.
However, playing safe is a different approach altogether. While playing safe and protecting own skin, one may scartch skin of other by deducting excessive tax which is not as per law.
I will not be surprised is at some time in future some officer take view that excessive tax deducted from ST is not as per provisions, so credit cannot be allowed to that extent because ST is not credited as income in P & l a/c and it was not as per law.
The Board must issue broader circular to exempt ST in all cases from TDS. Readers may refer to my article on this subject on this website.