The Ministry of Finance had come up with a circular few years back in 2014, clarifying the amount, on which to calculate the TDS, to be deducted on payments made to residents. Generally, when service tax component is added to the bill / invoice as a separate item, then the amount on which TDS needs to be calculated, is the amount before adding service tax.
July 1 marked the beginning of the Goods and Services Tax and hence now the ministry has issued a new circular. This was awaited and required since GST replaces the earlier Service Tax. The new circular now clarifies that while making any payments to residents, if GST component is added as a separate item, then the amount of TDS to be deducted from such payment will be calculated based on amount payable without including GST.
The earlier agreements entered into before 1 July 2017, that might contain service tax element, will be treated as GST according to this new circular. GST for this purpose includes Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST) and Union Territory Goods and Services Tax (UGST).