Under Section 194J, TDS is applicable to payments for professional or technical services, royalty, or non-compete fees at the prescribed rate of 10% (or 2% for certain technical services). The section does not explicitly distinguish between the principal amount of professional fees and the GST charged on such fees.

CBDT Clarification (Circular No. 23/2017 dated July 19, 2017)

The Central Board of Direct Taxes (CBDT) has clarified that when GST on services is indicated separately in the invoice, TDS is to be deducted only on the amount exclusive of GST. The rationale is that GST does not form part of the income of the service provider, and hence, no TDS is required on it.

Practical Implications

1. If GST is shown separately in the invoice:
• In such cases, TDS should be calculated only on the base amount (i.e., the professional fees), excluding the GST component. This is supported by the CBDT circular mentioned above.

2. If GST is not shown separately in the invoice:
• If the invoice does not explicitly bifurcate GST, the entire amount will be subject to TDS under Section 194J.

Judicial Precedents

Courts and Tribunals have consistently upheld the principle that TDS should not be deducted on amounts that do not form part of the service provider's income. GST, being a statutory levy, aligns with this principle when charged separately.

Risks and Compliance Considerations

1. Non-Compliance with CBDT Circular:
   Deducting TDS on the GST component where GST is separately shown may result in excess tax deduction, impacting the cash flow of the recipient. It may also lead to administrative complications, such as refund claims by the service provider.
2. Documentation and Record-Keeping:
   Proper invoices showing the breakup of professional fees and GST should be maintained as evidence of compliance.
3. TDS Deduction Vs Income Offered:
   Normally the professional fees is offered as income in the Income Statement, when TDS is deducted in the GST Component the Invoice value will be mentioned as Amount on which TDS Deducted in Form 16A, hence the income offered by the recipient and Amount as per Form 16A will not match, hence may lead to mismatch issues etc., 

Conclusion

Based on the provisions of Section 194J, the CBDT clarification, and judicial precedents:

1. When GST is separately shown in the invoice:
   Deduct TDS only on the base amount (professional fees), excluding the GST portion.
2. When GST is not separately shown in the invoice:
   Deduct TDS on the entire invoice amount as the GST portion is not explicitly segregated.

Recommendations

1. Request service providers to clearly bifurcate GST on their invoices.
2. Ensure TDS deductions are compliant with the above-stated principles to avoid penalties.
3. Regularly review CBDT notifications and amendments to stay updated with any changes in TDS provisions.