TDS should not be deducted on GST Component of an invoice

As we all aware that currently this is the TDS compliance period is going on. At the time of compliance many tax deductor face the confusion at the time of tax deduction such at what amount the TDS should be deducted and at what amount, when the invoice is issue within ambit of GST? That is whether on Gross invoice amount including GST or Net amount i.e excluding GST?

Therefore, author wrote this article to focusing on the issue i.e whether TDS should be deducted on GST component of Invoice or not? alongwith example.

TDS deduction under Pre GST Scenario:

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).

TDS deduction under Post GST Scenario:

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.

Example for better understanding of TDS deduction on 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.

Conclusion:

Hence to conclude, it is clear from above discussion that if GST on Services component has been indicated separately in the invoice, then no tax would be deducted at source and vise versa.

The provisions of these 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 ensures fewer blockages of funds for service provider and reduces the requirements of working capital.

(Republished with Amendments)