The Central Board of Direct Taxes had also taken the view that in matters of tax deduction at source on payments of rent, including service charges under Sec. 194-I, that tax need not be deducted from the service tax collected by the service provider on the ground that the landlord as service provider “only acts as a collecting agency for the government for collection of service tax,” vide Circular No. 4 of 2008 dated April 28, 2008. On the same reasoning, service tax cannot be treated as part of premium so as to qualify for deduction under Sec. 80D.
Sec. 80D allows deduction for medical insurance premia as defined under Sec. 80D(5). A stricter view would mean that only the premium for such policy would qualify for deduction. Further, service tax is levied on the service provider, who is authorised to collect the same from the person, who avails himself of the service. It follows that it is optional for the insurer to absorb the service tax itself out of its profits or to charge the same separately or to include it as part of the premium by making such service tax a component of the premium charged. It is only where it is included as part of premium without a separate charge, it would non-controversially be deductible under Sec. 80D. Hence, service tax cannot be treated as part of premium so as to qualify for deduction under Sec. 80D.
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