The Hindu Business Line : Service tax on TDS amount

Under the service tax law (Finance Act, 1994), charge of service tax is stipulated in Section 66, whereas obligation to pay service tax is cast by Section 68 based on the value of taxable service ascertained under Section 67. Accordingly, service tax is chargeable at 12 per cent of the value of taxable service. Unlike the earlier provision of valuation of taxable services based on gross amount charged, the new valuation norms provide for valuation based on gross amount charged in case of monetary consideration and in other cases on the value of consideration. While consideration would include any amount that is payable for the taxable services, gross amount charged include payments by cheque, credit card, deduction from account and any other form of payment by way of credit or debit note or book adjustment.

The amount of tax deducted at source (TDS) is on account of a direct tax (income-tax) and is not a deduction from the consideration value.

Section 68 is only a collection provision and, therefore, a levy provision cannot be interpreted or influenced by a collection section. Since TDS deduction is made on behalf of the person whose tax is being deducted and to whom payment is made, it shall be considered as part of the value of taxable service. As such, service tax shall be payable on the gross amount of invoice, that is, the amount inclusive of TDS deducted from the invoice amount. Thus, service tax shall be levied on the whole invoice amount and not on the net payable amount after TDS deduction.

Indenting agent

In the case of an indenting agent, the person is just canvassing for orders in India for the foreign principal and once he gets the order and forwards the details of the same to the foreign principal, who then ships it directly to the parties in India. The payment of the foreign principal is done directly by the local buyer in India. For these services, the person in India gets the commission. So the question of paying service tax on indenting commission earned in foreign currency is not valid. I feel it should be treated as export of services and that taxes are not supposed to be exported. Please clarify.

Rajeev, e-mail

It is desirable that only services should be exported and not the taxes. Ideally, taxes should not be exported along with export of service.

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Sanjiv Agarwal

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