TDS for Service Tax

The Finance Ministry is toying with the idea of extending the concept of Tax Deducted at Source (TDS) to service tax.

The Central Board of Excise and Customs (CBEC) has formed an expert group to look into the feasibility of the proposal, which will entail the user of a service to deduct service tax before making payments to the service provider.

“TDS is currently used for income tax. There is now an idea that has been floated as to why not have TDS for service tax as well. This does not mean it will be implemented immediately. Let the Expert Group come out with its recommendations,” Mr S. Dutt Majumder, Chairman, CBEC said.

If the CBEC decides to extend TDS to service tax, then it would seek the views of other stakeholders, including the public, and place the report on its Web site, Mr Majumder said.

“Whether we are convinced with having TDS or not….that also is not decided. Only a group has been formed since this idea has been floated,” he said.

The Finance Ministry has written to apex industry associations seeking their views on the idea of extending TDS to service tax. They have also been asked to give their views on the modalities for collection of TDS on service tax.

The current move to set up an expert group comes amid concerns over disproportionately small share of service tax collections to the overall indirect tax kitty. This is despite the services sector accounting for 65 per cent of the country's GDP.

In 2010-11, service tax collections accounted only for 20 per cent of the Centre's total indirect tax kitty.

Another area of concern for the Revenue Department is on the issue of filing of service tax returns. Although there are 15 lakh service tax registrants, only 6 lakh returns are being filed.

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