Accounting for Service Tax Paid in Income Tax

A company which I rendered some professional services to has reported the gross amount they paid to me (TRACES system). I have deposited the Service Tax collected which was part of that amount. In my income taxes, should I consider the Service Tax amount as Expense along with other Expenses like Fuel/Travel etc? Or should the Service Tax payment be applied as Tax Credit....Or Do I only report Total Revenue without Service Tax (despite the TRACES system showing total amount)

Any help would be great... more

Helpful Tax, Investments and Retirement Jul 28

Viewed by 52

UMESH DULAL (Chartered Accountant)

Service tax collected by you is not your income. You are treated as agent of Govt. for collection and payment of Service Tax. But income tax act provides that while calculating your income from business/profession, you have to add the Service Tax to your profit and you will be allowed to deduct the service tax if you have paid to govt. i.e If you have collected service tax and paid to govt., you do not have to pay income tax on that service tax but if you collected but not deposited with govt., you have to pay income tax on that Service tax. more

Jun 10

ASHISH GOSAIN (Advocate, Patent Agent and Tax Return Preparer)

Hi, Yes that's correct, since it is said as rule that one type of income cannot be taxed twice i.e. professional services income cannot be taxed twice i.e. on same contingency tax cannot arise twice. But taxes deposited from such income even service tax form an exception to the rule. You are absolutely correct in your understanding. Thanks, Ashish Gosain. more

Jul 30

Azam Yusuf

I had another question on travel expenses. If someone had professional service revenue of 5 lakhs in the year and if they had overseas and domestic travel expenses of 2 lakhs for the revenue than can they be deducted from the revenue? more

Jul 30

Azam Yusuf

Thanks a lot Ashish. So if I understand right, I am even paying income tax on the service tax portion that my customer paid and I deposited. more

Jul 30

ASHISH GOSAIN (Advocate, Patent Agent and Tax Return Preparer)

Dear Mr. Azam Yusuf, I hope you were able to resolve your query regarding investment allowance as discussed by my previous email. The Service Tax deposited is part of the professional services income and cannot be deducted as business expense . The gross amount including service tax will be taxable therefore as business Income. However, You may take deductions under sections 30-37 of the Income Tax Act,1961 and Sections 40-42 mentions deductions, which are not allowable. The following are allowable : Section 30- rent, rates,municipal taxes, repirs and insurance Section 31-Current repairs and insuranec of machinery, plant and furniture Section 32-Depreciation Bonus or commission to employees,Interest on Borrowed capital. Litigation expenses, stamp duty, registration charges, commisssion paid to selling agents Salary and Perquisites to employees. Expenses incurred on muhurat or Diwali, Premia paid on loss of profit policies Municipal property tax etc. are allowable. But the position on any tax paid on the professional services income is that it is taxable in the gross amount. Hope this satisfies your query. Thanks, Ashish Gosain. more

Jul 28