It is common that sums may be paid tax-free, where tax is borne by the payer himself. However, a question arises for the computation of Goods & Services Tax (GST).GST applicability on TDS Whether consideration and consequently transaction value shall include tax borne by a payer or not is a question.
GST Applicability on TDS Portion in Case of Import of Service
Issue under consideration
Whether GST is payable on reverse charge basis on the TDS amount in case of payments made for import services where the invoice has raised a net of TDS.
- Section 15(1) of the CGST Act: The value of the goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
- Definition of ‘consideration’ in relation to the supply of goods or services or both includes;
- Any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or any other person but shall not include any subsidy given by the central government or a state government.
- The monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or service or both, whether by the recipient or by any other person but shall not include any subsidy given by the central government or a state government.
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.
- Section 15 (2) (b) of the CGST act, 2017: Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both. This aspect was not present earlier.
Relevant provisions under the Income-Tax Act, 1961
- Tax deducted is income received (198): All sums deducted in accordance with the foregoing provisions of this chapter shall for the purpose of computing the income of an assessee, be deemed to be income received.
Provided that the sum being the tax paid, under sub-section (1A) of section 192 for the purpose of computing the income of an assessee shall not be deemed to be the income received.
- Income payable ‘net of tax’ (195A): In a case other than that referred to in sub-section (1A) of section 192, where under an agreement or other arrangements, the tax chargeable on any income referred to in the foregoing provisions of this chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deducted of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement.
GST applicability on TDS
- The service provider’s income is subjected to income tax for services rendered in India. Such tax is discharged by the recipient as per the provisions of the income tax act by way of TDS i.e. TDS is just a method to discharge tax liability of supplier by the recipient.
- TDS is actually payable by the recipient as per the contract. The liability of tax is discharged by the recipient on supplier’s behalf and such a tax is also booked as an expense in the books of accounts of the recipient hence, it is an expense which is incurred by the importer and the same was not included in the price actually paid or payable for the goods or services or both.
- TDS is payable in respect of supplies of services procured and hence it is a consideration as defined in section 2(15) of the CGST Act. The same view is supported in (2009) 18 STT 312 (New Delhi – CESTAT) Commissioner of Central Excise, Jaipur-I vs. Louis Berger International Inc.
- GST applicability on TDS
- Further, in terms of section 9(3) of the CGST Act, all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both covered by that section. Thus, by such legal fiction, the consideration inclusive of income-tax deducted at source shall be assessable value for the purpose of the Act in the hands of the recipient. Since the terms spoke that the price of contract payable was net of taxes and taxes, if any payable, in addition to the price of contract was payable by the payer thereon as price of the contract; hence, in view of such factual aspect, the tax payable in India was to form part of contract price. Thus, consideration charged for the service provided shall include income-tax deducted at source as per terms of contract and is in accord with section 9 (3) of the CGST Act for the reason that net price of contract agreed to be paid to foreign consultant was to include income deducted at source thereon to be price also.
- In light of the above-underlined provisions in the GST regime, the withholding tax will be liable to be subjected to GST. The same view was supported by TVS Motor Company Limited  25 taxmann.com 475 (Chennai – CESTAT).
- Also, it would be pertinent to make a note that GST paid on reverse charge basis on TDS part is eligible for availing of credit subject to provisions related to availment of credit in the GST Laws thereby leading to no loss.
GST applicability on TDS