The Central Board of Direct Taxes (CBDT) has clarified that, where the recipient of a service is required to deduct tax at source (TDS) when making a payment to the supplier, the amount of TDS shall be computed on the amount paid or payable without including GST.
GST for these purposes shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State Goods and Services Tax and Union Territory Goods and Services Tax.
To enable TDS to be computed exclusive of the GST component, it is vital that the GST component is indicated separately, adds the CBDT in its Circular No 23/2017 dated 19th July, 2017. The CBDT is continuing with the stand adopted by it earlier in case of service tax, where the amount payable was not grossed up with the service tax component for determining TDS.
To illustrate, if the payment under a contract is Rs 20 lakh, GST will be Rs 3.60 lakh.
Question is that whether the TDS would be on Rs 23.60 lakh or Rs 20 lakh.
If the GST component is indicated separately, CBDT clarifies that TDS will be against Rs 20 lakh which is the income of the service provider.
The CBDT has clarified that this circular will also apply to existing contracts entered into before July 1, when GST was introduced.