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Smart & Easy TDS Software for Preparing TDS Returns

TDSMAN Blog - Smart & Easy TDS Software for Preparing TDS Returns

TDS on Service Tax

According to Indian Tax Laws, the receiver of service is required to do two things at the time of making any payment:- 

1. Pay Service Tax on the services received

2. Deduct TDS on the payment made 

However, the confusion is whether TDS has to be deducted on amount including service tax or on amount excluding service tax. 

For example:- 

Value of services =

Rs. 1,00,000

Service tax on Rs. 1,00,000 @ 12.36% =

Rs. 12,360

Total =

Rs. 1,12,360

So, whether TDS should be deducted on Rs. 1,00,000 (i.e. amount exclusive of Service Tax) or Rs. 1,12,360 (i.e. amount inclusive of Service Tax) ? 

Government’s explanation of TDS on Service Tax 

The CBDT vide Circular No. 4/2008 dated 28-04-2008 announced that at the time of payment of rent i.e. payments under section 194I, TDS should be deducted on the amount exclusive of service tax as the landlord is only acting as a collecting agent for government for collecting the service tax. Therefore, TDS on rent should be deducted on the amount without including service tax. 

However for payments other than rent, TDS should be deducted on amount inclusive of service tax (i.e. on Rs. 1,12,360 as per above example). 

Click here to read the announcement released by government on the above subject. 

TDSMAN’s Point of View 

TDS should be deducted only from the income of the recipient. The service tax charged on the services is not the income as the same has to be submitted to the government. So logically TDS should be deducted from the income exclusive of service tax. Sadly, as per government rules, on payments other than rent the TDS has to be deducted on total amount (Amount inclusive of service tax). 

Source: Income Tax Website, CharteredClub.com

 

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Ten Tax Saving Options for Salaried Employees

1. Leave allowance: An employee can use such an allowance to cover his domestic travel and can be used for air, rail, and road transport.

2.Gratuity paid to an employee also has taxation benefits. To determine the taxability of gratuity, it is important to understand whether an employee is covered by payment of gratuity act. If an employee is covered by this act, lower of the following will be exempted from tax: –

  • 15 days salary based on salary drawn for each year of service.
  • Rs. 10,00,000/-
  • Actual gratuity received.

If an employee is not covered under the gratuity act then, the lower of the following will be exempted from tax:-

  • ½ month salary for each completed year of service.
  • Rs. 10,00,000/-
  • Actual gratuity received.

3.New pension scheme (NPS) : In this scheme an employer contributes an amount to the NPS which is the same amount that is contributed by the employee. Both of these contributions are eligible for deduction u/s 80 CCD (2) of the act. Thus such contributions reduce the overall tax liability of the employee.

4.House rent allowance (HRA) is paid by an employer to an employee to pay any rental towards his house property. An exemption is available under such HRA. The exemption is based on the least of the following: –

  • An amount equal to 50% of the yearly salary received (applicable to major Indian metros and 40% in other cases)
  • Actual HRA received
  • Rent paid in excess of 10% of the salary received in a year

5. Travelling allowance: Such an allowance is paid by the employer to the employee to meet his cost of travel on tour or on transfer from his work. This allowance can be completely exempt if the employee utilizes an amount equal to or more than the allowance.

6. Another option that is available to the employee is transport allowance. Such allowance is exempt up to Rs. 800/- per month i.e. 9600/- per year as a maximum deduction is available against this allowance.

7. In case a salaried employee has children, he should ask his employer to pay him children education allowance. A deduction of Rs. 100/- per month per child up to a maximum of two children is available.

8. An employee is entitled to receive perquisites  from his employer. The tax on such perquisites is generally borne by the employer and is tax exempt for the employee. Perquisites include payments by the employer to the employee such as car conveyance, free food and beverages, interest free or concessional  loan, sweeper/gardener/cook allowance, leave travel concession etc. These options are generally available as a part of salary structuring which an employee can provide to his employer.

9. Other general deductions u/s 80 C is also available to the salaried employee. Under this section, he can make investments in approved FD, Equity oriented MF, PPF etc. He can also pay his life insurance premiums. The total benefit available under this section if Rs. 100000/-.

10. An employee can also make several donations u/s 80 G and use that to reduce his total income. Such donations offer either 100% deduction or 50% deduction depending on the institution to which the donation is made.

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Circular No.158/9/2012 dated 08-05-2012 quashed by High Court

The Board vides its Circular No. 158/9/2012 dated 08-05-2012 read with Circular No. 154/5/2012 dated 28-03-2012 clarified that in case the individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (g), (p), (q), (s), (t), (u), (za) and (zzzzm) of clause (105) of section 65 of the Finance Act, 1994(Chartered Accountant, Cost Accountant, Company Secretary, Architect, Interior Decorator, Legal, Scientific and Technical consultancy services) and invoices for the same issued prior to 31-03-2012 for which payment received on or after 01-04-2012, the point of taxation shall be governed by Rule 7 of Point of Taxation Rules, 2011 (as applicable up to 31-03-2012) and thereby service shall be deemed to be provided on the date of receipt of payment and rate of service tax would be 12%.

 Recently in this regards, the Hon’ble Delhi High Court in the matters of DELHI CHARTERED ACCOUNTANT SOCIETY (REGD) VS UNION OF INDIA AND ORS [W.P.(C) 4456/2012 & C.M.No. 9237/2012] finds that in such cases sub clause (ii) of clause (b) of Rule 4 -Determination of point of taxation in case of change in effective rate of tax of Point of Taxation Rules, 2011 would be applicable (where the point of taxation will be the date of issuing invoice and accordingly rate of service tax would be 10%) instead of Rule 7 which has been substituted with new rule w.e.f. 01-04-2012 where the said specified eight services provided by individual or proprietary firms or partnership firms do not find any mention.

Moreover this Court finds that the above Circular no. 158 being contrary with the Finance Act, 1994 and the Point of Taxation Rules, 2011 cannot be allowed to govern this controversy and thereby has been quashed.

 

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