Service Tax and TDS

By Vijay Kumar

ANY payment made to any service provider is subject to TDS under Income Tax Act. If such service provider is a person resident outside India, still it is subject to TDS. But the service provider does not agree to deduct TDS. He expects the agreed amount to be paid to him in foreign currency. This being the situation, the amount paid to the service provider is grossed up by working back with TDS rate to arrive at the gross amount. The difference between such gross amount and the net amount paid is the TDS portion which is borne by the recipient of service in India.

The amount paid to the service provider who is residing outside India is subject to service tax under reverse charge since it being import of service. In terms of Section 67 of the Finance Act, 1994, service tax is payable on the Gross Amount charged by the service provider.

Is the TDS grossed up, as above, also part of the Gross Amount for the purpose of discharge of service tax?

Please see TDS grossed up is no longer gross amount for service taxin our Service Tax se GST Tak.