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TDS on wt amount......

Ankur Agrawal (CS, CA Final) (239 Points)

19 March 2009

Hello Frds...

This problem arose during the course of audit of one of the famous hotel ......The contractor submitted the bill of amount Rs 845000 and specifically mention that 80% of the above is material cost and rest 20% is service charges and also Charge VAt on such 80% amount related to material and charge service tax on Such 20% amout which is its service charges. ...on what amout Tds shoud be deducted .....

lets take imaginary figs...

bill amount -- 845000

Add: VAT(12.5% of 80% of 845000) = 84500

Add: Service Tax (10.3% of 20% of 845000) = 17407

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total amount 946907

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16 Replies

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 19 March 2009

Dear Ankur

TDS will be deducted on the whole amount i.e. what you pay to the contractor

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amit tiwari (service) (43 Points)
Replied 19 March 2009

tds should be deducted on total value of bill at rate prescribed u/s 194c , as you know that tds is deducted on payment , and wheather it contain vat \ service tax element or not , this fact is also supported circular issued by CBDT

1 Like

Ankur Agrawal (CS, CA Final) (239 Points)
Replied 19 March 2009

Originally posted by :amit tiwari
"	tds should be deducted on total value of bill at rate prescribed u/s 194c , as you know that tds is deducted on payment , and wheather it contain vat \ service tax element or not , this fact is also supported circular issued by CBDT	"

sir thanks for replying....

i do agree with u....bt i want to clearify u that in 194 I that is tds on rent ...there is a specific circular that tds shd be deudeted on the income of rent and service tax shd not be consider for tds purpose...similarly in sec 194J that is tds on professional services ...there is specefic circular that tds shd be duducted on the amount of payment inclucind service tax ....but still i didn't find any cirucular in regards of Sec 194C....so please i request u to mention the circular no and date of issue... if u have .....!!

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 20 March 2009

TDS must not be deducted on Service Tax amount. Department has instructed the same through circular 4/2008.

TDS is to be deducted from the payment you are making for services you received under contract. It is not deducted on other amounts, liable to be paid under statute (i.e. taxes) and not under contract.

Ankur Agrawal (CS, CA Final) (239 Points)
Replied 20 March 2009

Originally posted by :Rajesh Kumar
"	TDS must not be deducted on Service Tax amount. Department has instructed the same through circular 4/2008. TDS is to be deducted from the payment you are making for services you received under contract. It is not deducted on other amounts, liable to be paid under statute (i.e. taxes) and not under contract.	"

u mean only on the service charges....not even on material cost..??

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Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 20 March 2009

Well, in my earlier post i didnt say anything about material cost. My views are as follows:

-Section 194C is applicable on "payment for carrying out any work". It does not include payment for any sale of goods. Thus when it is clear from the invoice itself that such and such amount is for sale of goods, and say X amount is for work, TDS is applicable for payment for work only.

Some learned members has expressed that if different bills are raised for sale and work, then it is permissible. Well, as a basic principle of law, what is allowed indirectly is always allowed directly. Thus, if such deduction is allowed in differnt bills, it cannot be disallowed on the same bill, if the amount is shown separately.

Yes, if the amount is not shown separately, it is not a duty of the payer to separate the amount- he should deduct on the whole amount.

The issue was examined in Haryana Power Generation v. ITO [2007(164) Taxman 64], and it was held that contract for supply of plant and contract for erection are two different things, and TDS is to be deducted from contract amount for erection only, notwithstanding common prchase order.

Ankur Agrawal (CS, CA Final) (239 Points)
Replied 21 March 2009

thanks. sir....

S. Banerjee (Practising Cost Accountant. Core area- Central Excise. Service Tax Costing system installation including maintenance of Cost Records and Cost Audit and Management Audit mainly Revenue leakages Audit) (622 Points)
Replied 22 March 2009

Ankur,

My problem is different from your problem.

In my case I have observed that one most reputed 5 star hotel in Kolazta has charged both VAT and Service Tax on Gross bill. How it can be?

I am requesting to Mr. Rajesh Kumar also if he can highlight me about any notification where such provision is made or the Hotel Authority's is practise is wrong?

Thanks, in advance,

S. Banerjee

Umesh V Naig (Statutory Analyst) (452 Points)
Replied 22 March 2009

first under stand the application of law. If the hotel is supplying goods on which VAT input is availed they carry the selling activities and hence allowed to offset vat on its sale. and the service charges service tax is allowed . hope iam clear

Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 23 March 2009

Circular 4/2003 specifically provides that section 194I requires deduction of tax to be made from INCOME by way of rent and, therefore, income of the payee cannot include statutory dues. However, u/s 194C, TDS has to be deducted on ANY SUM paid and not on Income comprised in the payment. Hence, TDS has to be deducted on any sum paid incl. statutory payments

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Divya Karthik (S) (459 Points)
Replied 23 March 2009

hi all,could any one pls explain tds concept in detail & its calculation as ive just entered my articleship.pls guide me.....And also regarding payment dates.

Abhinav Agarwal (M.Com C.A SAP Consultant) (814 Points)
Replied 23 March 2009

HI Divya,

Read Sec 192 to 195 for details of TDS. It will not be possible to explain on a forum msg.

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 23 March 2009

Dear Shri Banerjee, in general there is no bar that same transaction cannot be taxed under two different laws, as the basis of charge may be different. We see almost everytime that on same sale of goods VAT is payable, and at the same time Excise duty is payable as a charge on manufacture. It is possible that same transaction consists of sale (hence VAT applicable) and service, and service tax is payable.

However, there is an specific exemption under Service Tax, vide Notification 12/2003, which exempts service tax on the transaction or value on which sales tax is paid. Thus if the hotel is paying VAT, it is not required to pay service tax. Still somebody wants to pay, you cant really stop them. In fact i dont know on what service they are paying service tax, in general hotels are not required to pay service tax.

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 23 March 2009

TDS is to be deducted on "payment for work". Payment of service tax is not a payment for work, and hence ST is not deductible on amount of service tax.

The circular, 4/2008 although specifically clarifying a particular head of TDS, expresses a general principle and that general principle is applicable for all. You cant argue that TDS will not deducted on service tax amount when service tax is paid on rent, and will be deducted on service taxamount when service tax will be paid on some other service. This argument is absurd.