Whether TDS have to be deducted on the amount of service tax?
Synopsis
By the Finance Act 2007, Central Government has extended the levy of service tax on renting of property with effect from 1.06.2007. Under section 194-I of the Income-tax Act TDS have to be deducted by any person, who is responsible for paying to a resident any income by way of rent. So the question was whether TDS have to be deducted on rent, inclusive of service tax or exclusive of service tax. By Circular No. 4/2008, dated 28-4-2008, CBDT clarified that Service tax paid by the tenant doesn’t partake the nature of income of the landlord, thus TDS has not to be deducted on Service tax. Though this clarification was in respect of section 194I, but it was the considered opinion of professionals and tax consultants that this view is also applicable in respect of other TDS provisions. But the CBDT has recently clarified to the query of Bombay Chamber of Commerce & Industry that TDS is also applicable on service tax portion in respect of professional / technical fees payable u/s 194J. In this article the author has discuss the scope of TDS on Service tax under different provisions of Income tax Act, 1961.
1. Introduction
By the Finance Act 2007, Central Government had extended the levy of service tax on renting of property also with effect from 1.06.2007. Renting of immovable property for use in the course or furtherance of business or commerce is now taxable @ 12.36% under section 65(105)(zzzz) of the Finance Act 1994. Renting includes letting, leasing, licensing or other similar arrangement.
Under section 194-I of the Income-tax Act TDS have to be deducted by any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, at the rate of (a) fifteen per cent if the payee is an individual or a Hindu undivided family; and (b) twenty per cent in other cases, if the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, exceed one hundred and twenty thousand rupees. Individual or a Hindu undivided family are liable to deduct TDS only, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid. For the purposes of this section "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee. Also where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of
account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
So the question was not whether TDS have to be deducted or not on rent, but the question was that whether TDS have to be deducted on rent, inclusive of service tax or exclusive of service tax. The matter was clarified by CBDT. By Circular No. 4/2008, dated 28-4-2008, CBDT clarified that 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 by CBDT 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.
Though this clarification was in respect of section 194I, but it was the considered opinion of professionals and tax consultants that this view is also applicable in respect of other TDS provisions. But the CBDT has recently clarified to the query of Bombay Chamber of Commerce & Industry that TDS is also applicable on service tax portion in respect of professional / technical fees payable u/s 194J.
2. TDS on Service Tax under different provisions of Income Tax
Under income tax, there are two types of provisions for deduction of TDS. Some of the important provisions are discussed below:
Section 192: Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable.
Section 193: The person responsible for paying to a resident any income by way of interest on securities deduct income-tax.
Section 194: The principal officer of an Indian company or a company shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder, deduct from the amount of such dividend, income-tax at the rates in force.
Section 194A: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest shall, deduct income-tax thereon at the rates in force:
Section 194C: Any person responsible for paying any sum to any resident, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct TDS at specified rates.
Section 194E: Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete), the person responsible for making the payment shall, deduct income-tax thereon.
Section 194H: Any person, who is responsible for paying, to a resident, any income by way of commission deduct income-tax thereon.
Section 194I: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at specified rate.
Section 194J: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of ………shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque of draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein.
Section 195: Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
As discussed above that in some cases TDS have to be deducted when any sum of amount is paid and in other cases, TDS has to be deducted only on income of the nature as specified under the relevant provisions. As per these two clarifications, it can be said that where the TDS have to be deducted on sum of amount then no deductions etc. have to be made and TDS have to be deducted on total sum paid subject to any contrary provisions i.e. inclusive of Service tax. But where the TDS have to be made on income then TDS should be deducted only on income and should not be deducted on Service Taxes etc.
Regards,
CA RITESH KOTHARI
CAclubindia
