Tag Archives: tds

No TDS on Service Tax if shown separately

CIRCULAR NO. 1/2014 [, DATED 13-1-2014



Subject: TDS under Chapter XVII-B of the Income-tax Act, 1961 on service tax component comprised in thepayments made to residents – clarification regarding


1. The Board had issued a Circular No.4/2008 dated 28-04-2008 wherein it was clarified that tax is to be Deducted at source under section 194-I of the Income-tax Act, 1961 (hereafter referred to as ‘the Act’), on the amount of rent paid/payable without including the service tax component. Representations/letters has been received seeking clarification whether such principle can be extended to other provisions of the Act also.


2. Attention of CBDT has also been drawn to the judgement of the Hon’ble Rajasthan High Court dated 1-7-2013, in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal No.235, 222, 238 and 239/2011), holding that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J of the Act.


3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the Act, the Board has decided that wherever in terms of the agreement/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 XVII-B of the Act on the amount paid/payable without including such service tax component.


4. This circular may be brought to the notice of all officer for compliance.




Conclusion :- No Tds on service tax amount if shown seperately in the invoive and this circuler is applicable on all the sections of TDS chapter viz. 194C, 194J, 194I etc.

Applicability of TDS on payment to CHA Agent

  1. Normally, Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents operate on a contractual basis and so the tax is deductible u/s 194C of the Income Tax Act-1961.
  2. Section 194C (1) provides that any person responsible for paying any sum to any resident contractor, for carrying out any work in pursuance of a contract, shall deduct tax at source at a specified percentage.
  3. Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents make payments on behalf of the importers and exporters towards statutory levies, for example, port dues, customs duties, etc., and other reimbursable expenses like Container charges, ICD Charges, stamp charges, and processing other statutory charges. The important question arises about the amount on which tax is to be deducted? There is a great confusion which leads to a dispute between the tax authorities and the tax payers as to whether tax is to be deducted on reimbursement of actual expenses incurred by the CHA and C&F.
  4. Arguments for deduction of tax at source on the entire amount:
    a] Clarification by Circular No. 715, dt. 8-8-1995:
    Circular No. 715, dt. 8-8-1995 has clarified that sections 194C and 194-J refer to any sum paid. So, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
    b] Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435:
    The Department often relies on the Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) wherein in was held that section 194C does not permit exclusion of amount of reimbursement of actual expenditure incurred by the payee for getting the work completed.
  5. Arguments for non-deduction of tax at source on the Reimbursement of Expenses: 
    a] Sub-section (2) of section (4) reads as under:
    “(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of the Act.”
    One can interpret that if the income is not chargeable to tax in the recipient’s hands under section 4(1), then, the provision for deduction of tax at source under sub-section (2) of section 4 will not be applicable.
    b] Supreme Court decision in the case of Transmission Corporation of AP Ltd. v. CIT (1999) 239 ITR 587:
    It was held that since the deduction of tax at source must be in relation to an income or trading receipt only, the actual cost reimbursements and other statutory charges do not come within the purview of section 194C.
    c] The Central Excise Department, in their Trade Notice No. 5 of 1997, Dt. 12-6-1997 also clarified that the payment towards statutory levies and various other reimbursable expenses incurred by Custom House Agent on behalf of the client, are not to be included for computing the service tax.
    d] In case of Rajiv Cumber v. Bharat Sanchar Nigam Ltd. (2002) 128 STC 494 (SC):
    It was held that the contractee had to examine the facts for making deductions from the total bills submitted by the contractor. Therefore, the contractor cannot make deduction mechanically.

We are of a considered opinion that if a consolidated bill is raised for charges as well as of expenses, then the entire amount should be subject to TDS. However, if a separate bill is given for charges and expense then the reimbursement of expenditure should not be subject to deduction of tax at source