04 December 2007
Hi, can someone please tell me about Notification or Circular issued by Income tax on deduction of TDS on Rent including Service Tax.
We are paying Rs. 120000/- p.a. as rent, hence not deducting TDS on it. However, since Service Tax is applicable from current FY, party is charging Service Tax on Rent, but asking us not to deduct TDS, as there is nothing specified in the Act.
04 December 2007
The tax is required to be deducted at source on the gross amount of bill which is inclusive of service tax as per the clarification issued by the Department. CBDT in circular no. 715 has clarified that Section 194 C and 194 J refer to "any sum paid" and obviously reimbursement cannot be deducted out of bill amount for the purpose of TDS. Therefore, considering the above circular and the amount to be debited in books as expenditure, the tax has to be deducted on the entire amount of bill inclusive of service tax (Source: http://www.lexsite.com/services/network/caa/ar30-a.shtml)
Also visit http://www.taxworry.com/2007/03/tds-on-gross-amount-including-service.html
In view of the above, I opine that we should the consider the sum of Rent plus Service Tax to decide whether TDS has to be affected or not.
In the instant case, sum of Rent and Service Tax exceeds the threshold of Rs 120000 during the financial year Hence TDS has to be affected.(Note: Per annum may be diffetent from Financial year)
From practical point of view, if the Landlord insists on not affecting TDS, require him not to collect Service Tax. This will be advantageous to you as well. He will obviously take responsibility for all consequences from the Service Tax Department
Also check up if the Property is in single name or joint names. If the property is joint names, Service Tax could perhaps be avoided because thershold limit will be more
04 December 2007
The Central Board Of Direct Taxes issued circular 715 dt 8/8/1995 which contained question number 30 which answer the aforesaid question.
Question 30 : Whether the deduction of tax at source under sections 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ? Answer : Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
Before issue of such circular ,Supreme Court in Associated Cement Co.Ltd vs CIT[1993] 201ITR435 held that person responsible for deducting tax is not required to estimate the income comprised in the payment . Relevant portion of judgment is
"Indeed, it is neither possible nor permissible for the payer to determine what part of the amount paid by him to the contractor constitutes the income of the latter. It is not also possible to think that Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent. required to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum. " There fore without going into the question whether the service tax or education cess should be included for TDS purpose or not, payer should deduct the tax at gross amount of PAYMENT. SOURCE:www.taxworry.com R.V.RAO
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