Applicability of TDS on purchase of Goods: Whether including GST or excluding GST

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Applicability of TDS on purchase of Goods: Whether including GST or excluding GST

 

CBDT Circular No. 23/2017 has clarified about non applicability of TDS on GST components in case of payment u/s 194J. However, the question remains whether it will be applicable for section 194Q?

Obviously, GST is nothing but a tax collected as an agent of the Government and without any components of income therein. Hopefully, CBDT may clarify that TDS is not applicable on the components of GST. Unless and until, the CBDT clarifies it, the issue would continue to be a matter of debate and litigation.

Let us read both the circular by CBDT issued earlier on similar issue.

F. No. 275/59/2012-IT (B)

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi

Circular No. 23/2017

Dated: 19th July, 2017

Subject: Modification of Circular No.1 of 2014 in view of substitution of Service Tax by Goods and Services Tax (GST).

The Central Board of Direct Taxes (the Board) had earlier issued Circular No. 1/2014 dated 13.01.2014 clarifying that wherever in terms of the agreement or 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 Income-tax Act, 1961 (the Act) on the amount paid or payable without including such Service Tax component.

  1. References have been received in the Board seeking clarification as to what treatment would be required to be given to the component of Goods and Services Tax (GST) on services, which has been introduced by the Government with effect from 1stof July, 2017 and into which the erstwhile Service Tax has been subsumed.
  2. The matter has been examined. It is noted that the Government has brought in force a new Goods and Services Tax regime with effect from 01.07.2017 replacing, amongst others, the Service Tax which was being charged prior to this date as per the provisions of Finance Act, 1994. Therefore, there is a need to harmonize; the content of Circular No. 1/2014 of the Board with the new system for taxation of services under the GST regime.
  3. In the light of the fact that even under the new GST regime, the rationale of excluding the tax component from the purview of TDS remains valid, the Board hereby clarifies that wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ 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 or payable without including such ‘GST on services’ component. GST for these purposes shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State Goods and Services Tax and Union Territory Goods and Services Tax.
  4. For the purposes of this Circular, any reference to ‘service tax ‘ in an existing agreement or contract which was entered prior to 01.07.2017 shall be treated as ‘GST on services’ with respect to the period from 01.07.2017 onward till the expiry of such agreement or contract.
  5. Hindi version shall follow.

(Sandeep Singh)

Under Secretary to the Government of India

Tele : 23094182

The earlier circular on applicability of TDS on Service Tax is as under:

CIRCULAR NO. 1/2014 [, DATED 13-1-2014

Subject: TDS under Chapter XVII-B of the Income-tax Act, 1961 on service tax component comprised in the payments made to residents – clarification regarding

The Board 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 (hereafter referred to as ‘the Act’), on the amount of rent paid/payable without including the service tax component. Representations/letters have been received seeking clarification whether such principles can be extended to other provisions of the Act also.

  1. Attention of CBDT has also been drawn to the judgement of theHon’ble Rajasthan High Court dated 1-7-2013,in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), 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.
  2. The matter has been examined afresh. 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.
  3. This circular may be brought to the notice of all officer for compliance

F.NO.275/59/2012-IT(B)]

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