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194C DEDUCTION (Income Tax)

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This query is : Resolved


( Author )
02 March 2010

WHEN COLLECTING TDS UNDER SECTION 194C IF THE BILL CONSISTS OF MATERIAL + VAT + LABOUR CHARGES + SERVICE TAX, ON WHICH AMOUNT TDS TO BE DEDUCTED


CA Vijay Kumar Gupta

( Expert )
02 March 2010

In my opinion, Tds is not required to be made for purchase . If vat is applied and cost of material recovered , it may be termed as purchase. However if the person supplied the goods as per your specification and on order inclusive of material, then TDS will be deducted on whole payment.


Nilesh Shah

( Expert )
02 March 2010

Nilesh Shah Writes:

The Central Board of Direct Taxes has issued a Circular No 4 of 2008 dated 28th April,2008 in connection with TDS under section 194 I.

The Circular verbatim is reproduced below:


" 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 of 2008, dated 28th April, 2008.

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

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 section 194-I, tax is deductible at source on income by way of rent paid to any resident. Further “rent “has been defined in section 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 does not partake of the nature of “income” of the landlord. The landlord only acts as a collecting agency for the Government for collection of service tax. Therefore, it has been decided that tax deduction at source (TDS) under section 194-I of the 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.

(Sd.) Ansuman Pattnaik,

Deputy Secretary (ITB)

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


In so far as TDS on rent under section 194I is concerned it is on income on rent, but the same is not the case with TDS under section 194C. Under section 194C TDS is on receipt of the amount and not on income component of the receipt.

Therefore in your case TDS will be dedcted on all the components of payment.



B.Chackrapani Warrier

( Expert )
02 March 2010

I disagree with the above two answers because that was the position prevailing before the substitution of section 194C by the Finance (N0.2) Bill,2009.
Now, whether the transactions referred in the question will come under the term "work" or not has to be examined, then only tds part arises. For this, from where(open market/awarder) the materials has been purchased is a crucial factor which the querist has not been mentioned.


CMA Ramesh Krishnan

( Expert )
02 March 2010

Yes.fully agree with Mr.Chakrapani Warrier.purchase of materials from whom is the factor for attract the TDS


Nilesh Shah

( Expert )
03 March 2010

Nilesh Shah Writes:

The real issue has faded into oblivion.

Sincerely,

Nilesh Shah


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