The below opinion is in respect of applicability of
GST on withholding tax payable under section 195 of the Income tax act,
1961.
Given below the extract of GST law relevant for the discussion & opinion to be formed.
1.
Section 15(1) of
the CGST Act:
15. (1) The value of a supply of 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.
2.
Definition of
consideration as per section 2(31) of the CGST Act:
(31) “consideration” in relation to the
supply of goods or services or both includes
(a) 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 by any other person but shall not include any subsidy given by the
Central Government or a State Government;
(b) the monetary value of any act or forbearance, in respect of,
in response to, or for the inducement of, the supply of goods or services 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;
3.
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.
4.
Relevant provisions under the Income-Tax Act, 1961
4.1Tax deducted is income received.
198. All sums deducted in accordance with the foregoing
provisions of this Chapter shall for the ose of com utin • 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 income received.
4.2. 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 arrangement, 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 deduction 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.
5.
Conclusion:
5.1. The service
provider’s income is subjected to income tax for services rendered in India.
Such tax is discharged by the recipient as per provisions of the Income Tax Act
by way of withholding tax (WHT) under
section 195 of the Income tax act i.e. WHT
is just a method to discharge tax
liability of supplier by the recipient.
5.2. WHT is actually payable by
the recipient as per the contract. The liability of WHT is discharged by the recipient
on supplier’s behalf and such a WHT 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 for the
services imported.
5.3. WHT 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.
5.4. 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 WHT 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 (WHT) 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 (WHT) 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.
5.5. In light of the
above underlined provisions in the GST regime, the withholding tax (WHT) will
be liable to be subjected to GST. The same view was further
supported by TVS Motor Company Limited[2012]
25 taxmann.com 475 (Chennai – CESTAT)
5.6. Also it would be
pertinent to make a note that GST paid on reverse charge basis on WHT part is eligible for availment of credit
subject to provisions related to availament of credit in the GST Laws thereby
leading to no loss. Further, the GST paid under RCM on captioned WHT is
also eligible for refund
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