Withholding Income Tax: Withholding the ambiguity in GST Valuation?

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The podcast discusses the intricacies of TDS (tax deducted at source) withholding, which affects the taxable value under the Goods and Services Tax (GST) system in India. Under the Income Tax Act, 1961, TDS is withheld by Indian service recipients on the amount payable to foreign service providers. To clarify the taxable value under service tax, the Central Board of Excise and Customs (CBEC) stated that the taxable value shall be the gross value, including TDS. However, the net receipt in the hands of foreign service providers is reduced to the extent of TDS, which can be overcome by restructuring the transaction. The issue is whether the taxable value for discharging GST should be confined only to the contractual payment or whether the amount of TDS should also be added. The podcasr discusses court decisions on the valuation provisions in the Finance Act, 1994, and the GST law.

The author highlights the intricacies of TDS withholding, which has been a matter of dispute in the past. While some court decisions have held that TDS should not be added to the taxable value, the podcast suggests that the valuation provisions under the GST law require a closer examination of whether the contractual payment made to the supplier can be equated with 'sole consideration.'

While the Finance Act considers the contractually agreed amount as the gross amount charged, the GST law provides that the taxable value shall be the transaction value, i.e., the price actually paid or payable. However, the presence of 'sole consideration' would depend on the facts and circumstances of each case, and it needs to be examined whether the contractual payment made to the supplier can be equated with 'sole consideration', wherein TDS is borne by the service recipient.

The podcast concludes that the presence of 'sole consideration' would largely depend on the facts and circumstances of each case.
Link:Withholding Income Tax: Withholding the ambiguity in GST Valuation? | Lakshmikumaran & Sridharan Attorneys (lakshmisri.com)
Audio Source: An article published on the LKS website in April 2023.
Authors: Shiwani Kaushik, Associate LKS