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 doesnt 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.
CAclubindia
RAJAN GUPTA
Published in Income Tax