TDS on gross amount incl. ST - loss of revenue for govt ?
Bhuvaneshwari V (CA Final CS Executive Prog) (48 Points)
18 January 2011
13 Replies
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 18 January 2011
| Originally posted by : Bhuvaneshwari V | ||
 |
As per the IT Act, Tax on Professional and Technical Services is to be deducted at source on the gross amount (Incl. the ST component).. I have a doubt in this regard. Say for example.. Net Amount = 100 ST @ say 10% = 10 So gross amount = 110 The deductor will deduct tax @ 10% from the gross amount, i.e Rs. 110.. Therefore TDS = Rs. 11 The deductee will remit Rs. 10 to the govt. as ST.. So the net income for him will be Rs. 100 only. But he will be eligible to claim Rs. 11 as TDS (and not 10% of his income, which'll be Rs. 10 only).. Does this mean that the professional is eligible to claim TDS in excess, by a rupee ? and does this mean the govt. is losing revenue ?? Pls Clarify :) |
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the deductee has to payment a) 10/- as service tax or ST b) 11/- as incometax towards TDS decuted = total of 21/-
Sonam Bidasaria
(CA)
(770 Points)
Replied 18 January 2011
It cant be said that it is loss to the government, rather it is correct to say that deductee is geeting benefit of Rs. 1.
Ravindra Manek
(Chartered Accountant)
(74 Points)
Replied 18 January 2011
There is no gain / loss either to govt or professional. On total bill of 110, professional will receive Rs. 99 (110-11). Out of this, he will deposit Rs. 10 as service tax to government. So net amount received by him would be Rs. 89. He can claim TDS of Rs. 11 so total would his net income i.e., Rs. 100 (89+11)
Thus, there is no gain / loss to any party.
However, looking other way round, had there been no service tax, he would have received Rs. 90 (100receipt - 10 TDS). However due to TDS made on service tax element also, actual net amount received by professional is 89. (110-10-11) TDS in any case was to be made out but because of TDS on STax element also, professional will have to spare Re 1 from his own pocket in the initial stage.
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 18 January 2011
ST component is diff thing from TDS which is part of indirect taxes and to be paid above the net service.
TDS is deducted from net realizable value, and to be deducted by payee and set off by the service provider.
putting both things of indirect tax/ direct tax is just misleading the utility of caclub.
ANKSS
(CA)
(151 Points)
Replied 18 January 2011
Yes, professional will always claim higher tds as tds is also deducted on ST which is not his income.
But this does not mean that it is loss of a rupee to the governmnet because total amt recd by govt is 10+11=21. Govt will pay Rs. 1 to the professional as refund, as tds is deducted on higher amount i.e. ST which is not his income.
So total amount received by govt is Rs. 10 as ST and Rs. 10 as tax i.e. 20.
Instead it would be benefit for Govt as they will utilise this 1 rupee for the period till the refund is granted and loss to the deductee as he will receive Rs. 99 instead of Rs. 100 from his client.
Agreed with ravindra
Bhuvaneshwari V
(CA Final CS Executive Prog)
(48 Points)
Replied 18 January 2011
Thanks all for the clarifications.. i get the point now that there's no gain/loss for any of the parties.
But I'm confused as to the logic that the assessee can claim Rs.11 as TDS, when his net income is only Rs.100 (10% of the income is Rs.10 only na.. )
Why the assessee has to pay and claim that Re. 1 on the ST component of the bill, when the ST doesnt form part of his income at all ?.. He's just a collecting-agent of the ST for the govt..
md rizwan ali
(student)
(41 Points)
Replied 18 January 2011
can some give the reference of circular/ notification no. pls.
Shivish Verma
(C A)
(376 Points)
Replied 19 January 2011
There is no loss to goverment kitty. as , ultimately the deductee will calculate his income at the end of the year and claim tds accordingly.
Further, govt is earning 1 rs. excess, because tax of Rs. 10 should have been deducted instead of Rs.11. Govt has already recd Rs. 1 Extra
ANKSS
(CA)
(151 Points)
Replied 19 January 2011
CBDT has clarified that no tds would be deducted on service tax component if payment is made under section 194I i.e. Rent .
Thus tds wud be deducted on actual amount of rent and not on service tax.
Similar is the case u/s 194J, but Cbdt has clearly stated that the clarification is only for rent & not for professional fees.
So bhuvan i agree with u that professional are only the collecting agency of the govt and hence tds shud not b deducted on st component, but due to clarification only in respect of 194I we hav to deuct tax on st component u/s 194j
Ravindra Manek
(Chartered Accountant)
(74 Points)
Replied 19 January 2011
Section 194J reads as under (Extract)
(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of-
(a) fees for professional services, or
(b) fees for technical services,...
shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque of draft or by any other mode, whichever is earlier, deduct......
As the section contains words "any sum", TDS is to be made on gross amount inclusive of service tax. Agreed with ANKSS in respect of CBDT clarification.
Gulshan Kumar
(Professional Accountant)
(119 Points)
Replied 21 January 2011
u can claim full tds which is deducted by the deductor, we recd. bill amount after deducted tds Rs.1 earlier and govt. recd. Rs.1 extra, not revenue loss to the govt.
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