CA. Vipin Gupta (Accounts Officer) (146 Points)
13 January 2010Suppose we are paying Rs. 180 crores to technical consultant after deducting Rs. 20 crore as Liquidated Damages (LD) . the Contract amount is Rs. 200 Crore. my question is on what amount we have to deduct TDS i.e. on 180 Crore or 200 Crore.
suppose we also have to bear service tax on above as service receiver. in that case on what amount we have to pay service tax i.e. on 180 Crore or 200 Crore
Amir
(Learner)
(4016 Points)
Replied 13 January 2010
Dear Vipin,
For TDS as well as for service tax Rs. 180 Crores is relevant...Simply because this is the amount which u r actually paying under the contract and the fact that originally the contracted amount was for Rs. 200 Crores or Liquidated Damages will not affect make any difference..
The word "GROSS" is relevant, It means actual payment & not the one listed in ur contract..
CA. Vipin Gupta
(Accounts Officer)
(146 Points)
Replied 13 January 2010
Dear aamir
but other view is that damages are like penalty which are otherwise payable by contractor himself.
hence it is difficult to say straight forward that income tax and service tax are payable on 180 Crore
Amir
(Learner)
(4016 Points)
Replied 13 January 2010
Dear Vipin,
LET'S UNDERSTAND WITH EXAMPLE
X enters into a contract amounting to Rs. 200 Crores with Y.
Now Y has not done the work properly or to the satisfaction of X...The agreement clause says if X is not satisfied or the work is not in terms of agreement than X is entitled to deduct 10% as Liquidated Damages...
Now what X does is, he exercises the above clause & agree to make the payment of Rs. 180 Crores in full & final settlement of the contract..
Now u tell me:-
1) "TDS is to be paid on the amount credited or paid" - what is amount credited/paid - Rs. 180 Crores..
2) Service tax is charged on gross RECEIPTS - what is the gross collection for Y - Rs. 180 Crores
Adam.P
(Articled Assistant)
(39 Points)
Replied 13 January 2010
Dear Vipin, Amir is right and the TDS liability will be on Rs. 180Cr. becouse as the section specifies "on the amount paid or credited...".
Two situations can be given:
1. Booked the bill for Rs. 200Cr.
In this case irrespective of the amount paid you have to deduct the TDS on Rs. 200cr or the amount of the bill booked.
2. Not booked any amount or less than 180cr.
You are required to deduct the TDS on amouint of payment i.e. Rs. 180cr.
CAclubindia
