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.
11 November 2008
Nilesh Shah Writes: Cell: 92246-59941 E mail: nilesh63@vsnl.com
Circular Text: [2008] 300 ITR(Stat) 0092 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.
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