India: CBDT Extends Relaxation Of No Withholding Tax To ‘GST On Services' Component

The Central Board of Direct Taxes¹ (CBDT) had earlier issued a Circular² clarifying that no tax shall be withheld on the service tax component comprised in the amount paid/payable to a resident if the same was indicated separately in the agreement/contract between the payer and the payee.

When the Government of India introduced Goods and Services Tax (GST) with effect from 1 July 2017, service tax had been subsumed into GST. Accordingly, the CBDT received representations for clarification on whether the benefit granted in the erstwhile Circular to service tax would be available to GST as well.

Accordingly, the CBDT, vide Circular No. 23 dated 19 July 2017, has now clarified that withholding tax shall not be applied to the component of 'GST on services' comprised in the amount payable to a resident, if the same is indicated separately as per the terms of the agreement/contract between the payer and the payee.

Furthermore, any reference to 'service tax' in an existing agreement/contract entered into prior to 1 July 2017 would be treated as 'GST on services' with respect to the period from 1 July 2017 onward till the expiry of such agreement/contract.

As per this clarificatory circular, GST shall include Integrated Goods and Services Tax (IGST), Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) and Union Territory Goods and Services Tax.

SKP's comments

This is a welcome Circular as it has clarified many doubts in the minds of the taxpayers. However, it is imperative to note that the relaxation of withholding tax on the 'GST on services' component is available only when the same is indicated separately in the invoice. In other words, this relaxation may not be available where the amount payable is inclusive of GST without separately indicating the GST component.

Footnotes

1 Apex Direct Tax Administrative Body in India

2 Circular no. 1/2014 dated 13 January 2014

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