Introduction– From the last month GST has been applicable. But still many taxpayers have lots of queries. Here I am dicussing a general query which many taxpayers are facing. Whether TDS should be deductible on GST component of an invoice or not?

Earlier it was clarified by the Central Board of Direct Taxes (CBDT) that TDS under Chapter XVIl-B of the Income Tax Act, 1961 had to be deducted on the amount paid or payable without including Service Tax component, if service tax component had been indicated separately in the invoice(Circular No 1/2014 dated 13.01.2014).

However, after implementation of GST w.e.f 1st July 2017, Taxpayers are facing problems regarding the treatment of GST component on Services.

CBDT has clarified vide Circular No. 23/2017 dated 19th July, 2017 that if GST on Services component has been indicated separately in the invoice, then no tax would be deducted at source under Chapter XV Il-B of the Income Tax Act, 1961 on such GST component.

Let’s take an example, if Mr. A, makes a supply of taxable service to Mr. B for Rs 2,00,000 and he also charges Rs. 18,000 as CGST @9% and Rs. 18,000 as SGST (or UTGST) @9% separately in the invoice, the total value of invoice being Rs, 2,36,000, then Mr. B is required to deduct TDS under section 194J only on the taxable value of supply (without including GST) i.e. Rs. 2,00,000 and not on the full value of invoice of Rs. 2,36,000.

However, if Mr. A charges Rs. 2,36,000 as the value of taxable supply of services inclusive of GST from Mr. B and does not show ‘GST on Services’ component separately in the invoice, then Mr. B is liable to deduct TDS under section 194J on the full value of invoice i.e. Rs. 2,36,000.

The provisions of this circulars apply to the all old contracts as well which were entered prior to 01.07.2017.

The benefit of this circular is that it ensure less blockage of funds for service provider and reduce the requirements of working capital.

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Tags : goods and services tax (5895) GST (5496) TDS (1074)

One response to “TDS should not be deducted on GST Component of an invoice”

  1. Samarth Aggarwal says:

    Applicabilty of above provision on TCS ?

    Sir Whether TCS is to be calculated on final value( incl of ST) or excl of GST amount on sale of Iron Scrap.


    Samarth Aggarwal.

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