18 February 2020
A partnership firm has the vehicles RC in his name and used by Pvt Ltd of same concern. The maintenance work is done by Partnership firm and this expenses to be raised to Pvt Ltd. what will have the GST and TDS impact on the transaction.
01 August 2024
In the scenario where a partnership firm is providing maintenance services for vehicles owned by the partnership firm but used by a private limited company (Pvt Ltd) of the same concern, and the expenses are to be billed to the Pvt Ltd, there are several aspects to consider regarding GST and TDS:
### **GST Impact**
1. **Nature of the Supply:** - The partnership firm is providing maintenance services to the Pvt Ltd. Since both entities are related but distinct legal entities, the supply of maintenance services is subject to GST.
2. **GST Rate:** - Maintenance services fall under the category of "Repair and Maintenance" services, typically taxed at 18% GST. Ensure to check the specific GST rate applicable based on the nature of services provided.
3. **Invoicing:** - The partnership firm should issue a GST invoice to the Pvt Ltd for the maintenance services provided. The invoice must include details such as the GST rate, amount, and GSTIN of both entities.
4. **Input Tax Credit (ITC):** - The Pvt Ltd, being the recipient of the maintenance services, can claim Input Tax Credit (ITC) on the GST paid, provided it is used in the course of business and meets other conditions laid out under the GST law.
### **TDS Impact**
1. **TDS Applicability:** - As per the Income Tax Act, TDS is applicable on payments made to contractors, including for repair and maintenance services. The applicable section is Section 194C, which deals with TDS on payments to contractors.
2. **TDS Rate:** - For payments to contractors, TDS is typically deducted at 1% for individuals and HUFs and 2% for others, including companies. This applies to the gross amount payable for the maintenance services.
3. **TDS Deduction:** - The Pvt Ltd is responsible for deducting TDS on the payment made to the partnership firm for maintenance services. The deducted TDS should be deposited with the government and a TDS certificate (Form 16A) should be issued to the partnership firm.
### **Summary of Entries**
1. **Partnership Firm (Service Provider):** - **To record the invoice:** - Debit: Accounts Receivable (Pvt Ltd) [Gross amount of invoice] - Credit: Service Revenue [Gross amount of invoice] - Credit: GST Payable [GST amount]
2. **Private Limited Company (Recipient):** - **To record the payment and TDS deduction:** - Debit: Maintenance Expense [Gross amount of invoice] - Debit: GST Input Tax Credit [GST amount] - Credit: Accounts Payable (Partnership Firm) [Gross amount of invoice] - Credit: TDS Payable [TDS amount] - **On payment of the invoice:** - Debit: Accounts Payable (Partnership Firm) [Gross amount of invoice] - Credit: Bank [Amount paid less TDS]
**Key Points:** - Ensure proper documentation and compliance with GST and TDS regulations. - Maintain records of the invoices, GST payments, and TDS deductions for future reference and audits.
By following these guidelines, you will ensure that both GST and TDS impacts are correctly managed for the inter-company billing of maintenance services.
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