How i deduct tds from contractors bill

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Querist : Anonymous

Querist : Anonymous (Querist)

19 July 2012 Sir i have a contractor bill at the beginning mobilization advance is given for rs 500000 less tds this will deduct at 20% from each running bill and 5% retention must be hold from each bill, now i have 1st RA Bill the bill description is as follow
basic =150000
less mob(20% of basic) =30000
less retention 5% =7500
now the question is about service tax and tds on what amount i will charge service tax if store issue to contractors for rs 10000(on chargeable basis) and on which amount i will deduct tds?
please help me

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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19 July 2012 Service tax shall be charged by contractor on Rs. 150000 before deducting mob & retention money.
TDS will be deducted on Rs. 130000 + Service tax.

Querist : Anonymous

Querist : Anonymous (Querist)

21 July 2012 Thanks sir but what about store/consumable issued to the contractor on chargeable basis/not chargeable basis.
the amount of issued material should be add after tds or before plz help

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 When handling TDS (Tax Deducted at Source) and service tax on contractor bills, it's crucial to understand how these are applied to ensure compliance with tax laws. Here’s how you can handle the contractor’s bill, including the treatment of mobilization advance, retention, and materials issued to the contractor:

### 1. **Understanding the Contractor’s Bill and TDS**

Based on your description, the contractor’s bill includes:
- **Basic Amount**: ₹1.50L
- **Mobilization Advance**: ₹5L (advance given, less TDS at 20% to be adjusted from running bills)
- **Retention**: 5% of each bill amount

Here’s how you would calculate the TDS and service tax:

### 2. **Calculation of TDS**

#### a. **TDS on the Basic Amount**

From the basic amount of ₹1.50L:
- **Less Mobilization Advance Adjustment**: ₹30K (20% of ₹1.50L, already deducted at the time of advance)
- **Less Retention**: ₹7,500 (5% of ₹1.50L)

**Net Amount before TDS and Service Tax**: ₹1.50L - ₹30K - ₹7.5K = ₹112.5K

Assuming TDS needs to be deducted from the net amount (before service tax), the TDS will be calculated on ₹112,500. However, TDS on running bills is typically deducted before service tax is applied.

So, you would deduct TDS as follows:
- **TDS Rate**: 20% (as per the applicable rate for contractors)

\[
\text{TDS} = 20\% \text{ of } ₹112.5K = ₹22.5K
\]

#### b. **Service Tax**

Service tax is generally calculated on the amount before TDS. For the contractor’s bill:
- **Amount on which Service Tax is Charged**: ₹1.50L (basic amount)

Assuming the service tax rate is 18% (or the applicable rate), the service tax would be:
\[
\text{Service Tax} = 18\% \text{ of } ₹1.50L = ₹27K
\]

### 3. **Materials Issued to Contractor**

If you issued materials to the contractor, the treatment depends on whether these materials are chargeable or non-chargeable:

#### a. **Chargeable Materials**

If the materials are chargeable (i.e., billed to the contractor), the amount should be added to the basic amount for service tax purposes:

\[
\text{Total Amount for Service Tax} = \text{Basic Amount} + \text{Chargeable Materials}
\]

\[
\text{Total Amount for Service Tax} = ₹1.50L + ₹10K = ₹1.60L
\]

\[
\text{Service Tax} = 18\% \text{ of } ₹1.60L = ₹28.8K
\]

The TDS should still be calculated on the amount before adding service tax.

#### b. **Non-Chargeable Materials**

If the materials are non-chargeable, they are not included in the amount for which service tax is calculated.

### 4. **Example Calculation**

Here’s a summarized calculation for your example:

- **Basic Amount**: ₹1.50L
- **Less Mobilization Advance Adjustment**: ₹30K
- **Less Retention**: ₹7.5K
- **Net Amount Before TDS and Service Tax**: ₹112.5K

- **TDS Calculation**:
\[
\text{TDS} = 20\% \text{ of } ₹112.5K = ₹22.5K
\]

- **Service Tax Calculation** (if materials are chargeable):
\[
\text{Service Tax} = 18\% \text{ of } ₹1.60L = ₹28.8K
\]

### 5. **Final Payment to Contractor**

- **Basic Amount**: ₹1.50L
- **Less Mobilization Advance Adjustment**: ₹30K
- **Less Retention**: ₹7.5K
- **Less TDS**: ₹22.5K
- **Add Service Tax**: ₹28.8K

\[
\text{Final Payment} = ₹1.50L - ₹30K - ₹7.5K - ₹22.5K + ₹28.8K = ₹118.8K
\]

### Summary

- **Service Tax** is generally calculated on the gross amount before TDS.
- **TDS** should be deducted from the net amount before service tax.
- **Chargeable materials** should be included in the service tax calculation, whereas non-chargeable materials should not.

Always consult with a tax professional or accountant to ensure compliance with the latest tax laws and regulations, as there might be specific rules applicable to your region or industry.