Can any1 tell me the Tax to be deducted at source if expense or payment include service tax.
For e.g.
Suppose if Professional Service provider Billed amt is Rs.10,000/-
Service Tax on It @ 10.30% Rs.1030/-
so TDS @ 10.30 would on Rs. 10000 or Rs.11030/-
The Service Tax collected by the party does not form part of his income. He is merely a collecting agent for the government who will collect Service Tax and deposit the same with the government.
Hence, when the amount of Service Tax is not income, there is no question of deducting Tax on Income. So TDS should be made ONLY on the Gross amont without including the amount of Service Tax.
Service tax paid by professional doesn't partake the nature of income of the professional. The professional only acts asa collecting agency for Government for collection of service tax. So TDS should be deducted on the Service fee amount, not on service tax amount. There is also Income Tax Circular for 194-I (Rent), income tax dept clarifies that in case of rent , tds would be required to be made on the amount of rent paid without including the service tax.
There is ambiguity about the same, as the CBDT has clearly singled ot 194I, i.e, TDS on rent so the thing in case of professional service is not settled as yet.
You will have to deduct tds on gross amount of Rs.11030/- and not basic amount. Exception is there only for Section 194I wherein tds has to be deducted only on basic rent, excluding service tax amount.
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