QUESTIONS & ANSWERS
TDS on service tax collected by service provider
Under the Service Tax Act/ Rules, service tax is collected by the service provider from the client to be paid in full to Government account. In certain cases, TDS is effected on service tax and charged to the one, who collects it quoting Sec. 194C of the Income-tax Act.
Some do not do so on the ground that service tax being payable to the Government is not liable in the absence of a specific provision for inclusion of service tax. Kindly answer, if it is right to make the service provider liable for TDS for money, which does not go to his account.
A service provider, who is liable for service tax, may either charge such service tax from his client expecting him to bear it or meet it himself. If he chooses to charge such service tax, it forms part of consideration, so as to be liable for TDS. The fact that he may collect such charge by a separate debit note or a separate bill does not make any difference to the inference, that it forms part of the amount collected by him as part of the proceeds liable to tax deduction at source. The argument that it is collected on behalf of the Government is not correct, since service charge is levied in law on the service provider, who is authorised or permitted to collect the same from the person, who avails such service. At any rate, it forms part of the consideration received by him for his service, where he chooses to collect the same. Wherever such service tax is borne by the party availing the service, it forms part of the contractual amount to be paid for service. Where such service falls under Sec. 194C, tax has to be deducted on the gross amount including service tax.
S. RAJARATNAM
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