21 March 2009
SEC.194I TDS AND SERVICE TAX CHARGED ON RENT FOR E.G. 100000 RENT PLUS 12.36% S.TAX I.E.12360 AND 112360 SO TDS MUST BE CHARGED ON 1 LAKH OR ON 112360? AND WHY? EXPLAIN LOGICALLY?
21 March 2009
CBDT has clarified only under Sec 194I that TDS is not deductible on the service tax element.
therrefor TDS in your case would be on 1 lakh and not inclusive service tax
The circular is appended below for your ready reference
CIRCULAR No.4/2008 dated: April 28, 2008
Clarification on deduction of tax at source (TDS) on service tax component on rental income u/s. 194-I of the Income Tax Act.
Representations/letters have been received in the Board seeking clarification as to whether TDS provisions u/s. 194-I of the Income Tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194-I as
" rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,-
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
whether or not any or all of the above are owned by the payee;
3. Service tax paid by the tenant doesn't partake the nature of "income" of the landlord. The landlord only acts as a collecting agency for Government for collection of Service Tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
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