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TDS on Service Tax

Sanjay (Student) (112 Points)

16 December 2008

Hello friends,

I need to know whether the TDS is dedcuted on service tax value in any case i.e. on rent, cotract, commission etc.?

Thanx

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6 Replies

Hitesh Kothari (Article) (144 Points)
Replied 16 December 2008

Dear Sanjay,

There is circular no 4/2008 dtd 26.04.2008 which provides that tax is not to be deducted on service tax portion charged on Rent and not in any other case.

Thanks & Regards

Hitesh

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(Guest)

No tds is to be deducted on amount of rent,contract,commission,etc excluding service tax.

Please refer below circular issued by CBDT in this context:A long awaited clarification regarding tds u/s 194-I regarding rent payment has been Issued by the CBDT.The issue is that

Brief about section 194-I

Rent is to be deducted by all person on payment of rent except huf and individual who's sales is less than limit specified in section 44AB(tax audit)(40 lacs for business 10lac for professionals)
Rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of
- (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,

section is applicable even in case of payee is owner or not.
Rate of tds is
- For use of any machinery or plant or equipment:10%
- For other assets :in case of
  - Payee is Individual or Huf:15%
  - other case:20%
Tax is deductible only if amount of rent paid is more than 12oooo

what was the issue

whether the service tax paid on rent of immovable property to landlord is to included while deducting tax at source.

what is clarified

and now clarification by CBDT has been issued that service tax should not be included while deducting tax at source on rent paid to landlord.

what are implications of clarification

Clarification has been issued in such a manner like that this issue were never a issue at all.what is wording please look

"Service tax paid by the tenant doesn't partake the nature of income of the landlord."

By this the CBDT has indirectly fixed a relation between Income and TDS whether it has been fixed intentionally or unintentionally,but this clue/wording can be used for other tds provisions by the assessee in his defense while not deducting tds on reimbursement of taxes so we can draw a conclusion that if person is getting mere reimbursement of taxes than tds should not be deducted.
For calculating the amount of 120000 now service tax amount should be excluded ,suppose if a person pay rent of rs 108000 to payee and 12.5% service tax on rent i.e 13500..in this case though total amount paid is 121500 but tds is not deductible after clarification as rent amount is only 108000 and less than 120000 prescribed in the section 194-I

Can we apply this clarification on section 194-J also

Though the clarification has been issued for the section 194 -I only but ratio of the clarification can be applied in the case of 194-J also as in the case of section 194 -J also"Service tax paid by the client doesn't partake the nature of income of the professional"and "The professional only acts as a collecting agency for Government for collection of service tax."hence the tax should be deducted only on the amount of fees u/s 194 -J without including the service tax in it.

full text of the circular is given below

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Clarification on deduction of tax at source (TDS) on service tax component on rental income under section 194-I of the Income-tax Act

CIRCULAR NO. 4/2008, DATED 28-4-2008

Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 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.

[F.No.275/73/2007-IT(B)]

Surya Jain (Student) (944 Points)
Replied 16 December 2008

I thing there is no TDS on service tax. If I am wrong than please explain me about this on my mail ID-suryaj @ sathguru.com.

Surya

Prabeer (B. COM (H) CA & CS Final) (5484 Points)
Replied 16 December 2008

No, TDS need to be deducted excluding the Service Tax amount.

Anoop Garg (FCA) (120 Points)
Replied 17 December 2008

TDS not deductible on service tax portion,one has to understand the basis of CIRCULAR NO. 4/2008, DATED 28-4-2008 in toto and not merely grammatical meaning,The reasoning propound is that anything which is collected is not income,and when it is not the income of recepient then TDS is not invoked.Anoop Garg