The Central Board of Direct Tax has clarified that if GST amount is mentioned separately in contract or invoices tax shall be deducted at source on service amount excluding GST.
Illustration : Company A Pay office rent to Company B.
Company B raise a invoice to Company A.
Rent = 1,00,000/-
GST @18% = 18,000/-
Invoice amount= 1,18,000/-
Now Company A shall deduct tax on amount of Rs 1,00,000/-. As GST amount is separately mentioned on invoice, TDS not applicable on GST Component.
CIRCULAR No. 23 /2017
F. No. 275/59/2012-IT (B)
Government of India
Ministry of Finance
Dep of Revenue
Central Board of Direct Taxes
North Block, New Delhi
19th July, 2017
Subject: Modification of Circular No.1 of 2014 in view of substitution of Service Tax by Goods and Services Tax (GST).
1.The Central Board of Direct Taxes (the Board) had earlier issued Circular No. 112014 dated 13.01.2014 clarifying that wherever in terms of the agreement or contract between the payer and the payee, the Service Tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVIl-B of the Income tax Act, 1961 (the Act) on the amount paid or payable without including such Service Tax component.
2. References have been received in the Board seeking clarification as to what treatment would be required to be given to the component of Goods and Services Tax (GST) on services, which has been introduced by the Government with effect from 1″ of July, 2017 and into which the erstwhile Service Tax has been subsumed.
3. The matter has been examined. It is noted that the Government has brought in force a new Goods and Services Tax regime with effect from 01.07.2017 replacing, an10ngst others, the Service Tax which was being charged prior to this date as per the provisions of Finance Act, 1994. Therefore, there is a nc d to harmonize; the (;OnlenlS of C ircular No. II 20 14 of the Board with the new system for taxation of services under the GST regime.
4. In the light of the fact that even under the new GST regime, the rationale of excluding the tax component from the purview of TDS remains valid, the Board hereby clarifies that wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XV Il-B of the Act on the amount paid or payable without including such ‘GST on services’ component. GST for these purposes shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State Goods and Services Tax and Union Territory Goods and Services Tax.
5. For the purposes of this Circular, any reference to ‘service tax ‘ in an existing agreement or contract which was entered prior to 01.07 .2017 shall be treated as ‘GST on services’ with respect to the period from 01.07.20 17 onward till the expiry of such agreement or contract.