No TDS on service tax component – CBDT circular

CBDT has clarified that no TDS is require to deduct on service tax component by issuing a circular No. 1/2014 dated 13/01/2014. In the circular it is clearly mentioned that if payment is made to the resident and service tax is mentioned separately, then TDS under chapter XVIII-B of the income tax act is deducted without including service tax component.

In previous circular No. 4/2008 dated 28/01/2208 CBDT clarified that TDS deductible under section 194I i.e. TDS on rent is deducted without including service tax component. ┬áIn current circular CBDT has extended this provision to all type of TDS deduction. However there are two conditions for non deduction of TDS on service tax component: –

1. Payment is made to resident;
and

2. Service tax should indicate separately in the terms of agreement/contact between payer and the payee.

Logically speaking the amount of the service tax is not the income of the recipient. Service tax is the amount collected by the recipient on behalf of the government and the TDS is deducted on income. So is very clear that TDS is not required to deduct on the service tax component and CDBT clarify the same by issuing the circular.

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