RSM India

No TDS on GST component comprised in the payments made to residents - RSM India Newsflash

We are pleased to release our newsflash on the captioned subject.

In the pre- GST era, the Central Board of Direct Taxes (CBDT) had issued Circular No. 1/2014 dated 13.01.2014 clarifying that tax is not required to be deducted under Chapter XVII-B of the Income-tax Act, 1961 on Service Tax component comprised in the payments made to residents wherever in terms of the agreement or contract, the Service Tax portion is shown separately.

Under the GST regime - effective 1 July 2017, issue arose as to whether payer should deduct tax at source on the amount inclusive of GST or exclusive of GST. While the inclusion of GST component would have led to a higher amount of tax being deducted, the exclusion would have meant lesser deduction of tax.

To clarify this aspect, the CBDT has recently issued a new circular stating that the payer shall deduct tax at source on the amount without including GST component, 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 shown separately.

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