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Service tax applicability

prasad (manager) (171 Points)

20 December 2011

Dear All,

I would like to know the applicability of service tax to the following transaction.

We are a startup software company in Karnataka and we completed our 1st client's work last month. For which, we received the payment in 1st week of Dec'11. Lets assume we raised invoice with the value of INR40000 + (Service tax 10.3%) 4120 = Total 44120. Our client deducted 10% TDS on the total value, that is, 4412 and paid remaining amount of 39708. Now we would like to know whether we need to pay service tax INR 4120 OR 10.3% of 39708 (i.e. 4090).

Thanks in advance,

Prasad

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3 Replies

CA Gunjan H Shah (CA) (230 Points)
Replied 20 December 2011

WIth Point of Taxation Rules being effective from 01.07.2011 you need to pay on Invoice amount of 44,120/- whether you receive a Single rupee or not.

even if point of taxation was not in force still TDS is also a receipt for you, as your tax is deposited to Govt by some one else.

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CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 20 December 2011

Agree with Gunjan.

Service Tax has to be paid on gross amount charged from the customer. TDS deducted by customer is a tax on your income that is paid to government by the deductor on behalf of the deductee. Ultimate benefit of such TDS is enjoyed by the deductee on the basis of TDS Certificate issued by the deductor.

Moreover where Service Tax of Rs.4120/- has been shown in the invoice, the same has to be deposit. If a lesser amount is deposited, demand may be raised by the department in future and in that case you may have to pay Service Tax alongwith interest & penalty.

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Prasad (Sr. Manager) (617 Points)
Replied 22 December 2011

The invoice to customer is to be raised within 14 days of completion of service and the service tax liablity is to be discharged by the 5th of next month. in your case assuming the service was completed by 30th Nov, the invoice to be raised by 14th of December and service tax to be paid by the 5th of Jan 2012.