Tds
This query is : Resolved
02 March 2012
As per Circular 4/2008 dated 28.04.2008 TDS under section 194 I shall be done for an amount excluding service tax i.e for an actual rent paid or payable. But if we are paying rent to non resident(Sec 195)what shall be the provisions. Whether the TDS shall be done inclusive of service tax or exclusive of service tax.
02 March 2012
When payment is made to non-resident it will be treated as import of service in most of the cases and in that case service reciver will pay service tax directly to the government. Therfore, TDS will be deducted excluding amount of service tax.
Simple Rule: Except in case of Section 194I, in all other cases where service tax is charged by service provider in his invoice, then TDS will be deducted on gross amount including ST amount, where no service tax is charged there is no issue of TDS on service tax
Simple Rule: Except in case of Section 194I, in all other cases where service tax is charged by service provider in his invoice, then TDS will be deducted on gross amount including ST amount, where no service tax is charged there is no issue of TDS on service tax
02 March 2012
Circumstances behind the issue of Circular 4/2008 is to resolve the queries received by the IT Dept u/s 194I. Logic applied by IT Dept. is Land Lord is the collecting Agency of ST and such ST shall not form part of his income.Shall we apply the same logic for the rent payment to nonresident.
27 July 2025
Great question! Here’s a detailed explanation regarding TDS on rent paid to a non-resident under **Section 195** and the application of service tax:
---
### Background:
* **Circular No. 4/2008 dated 28-04-2008** clarifies that for **Section 194I (rent payment to resident landlord)**, TDS should be deducted **excluding service tax**, because the landlord is just a collection agent for the government regarding service tax, and the service tax doesn’t form part of his income.
* But this circular specifically addresses payments under Section 194I to **residents**.
---
### What about payments to **Non-Residents** under **Section 195**?
1. **TDS on Rent Paid to Non-Resident (Section 195):**
* Payment to a non-resident is generally treated as **import of service**.
* In such cases, **service tax (now GST) liability is on the service recipient** (i.e., the payer in India), and not on the non-resident.
* The non-resident’s invoice might or might not include service tax, but typically **service tax is paid by the Indian recipient directly to the government** under reverse charge.
2. **TDS Deduction Basis:**
* Since service tax is paid separately by the Indian payer (under reverse charge), the **TDS should be deducted on the rent amount excluding service tax**.
* Service tax is not income for the non-resident; it is a tax collected by the government, so it should not be included in TDS calculation.
3. **Summary:**
| Situation | TDS Deduction Base |
| ---------------------------------------- | ------------------------------------------------------------------ |
| Rent to resident landlord (Section 194I) | Rent amount **excluding** service tax (per Circular 4/2008) |
| Rent to non-resident (Section 195) | Rent amount **excluding** service tax (since ST paid by recipient) |
---
### Application of Circular 4/2008 Logic to Non-Residents:
* The logic is somewhat similar because service tax is not income of the non-resident.
* However, since service tax on import of service is paid by the recipient under reverse charge, the non-resident generally does not charge service tax on the invoice.
* Therefore, TDS is calculated only on the rent portion, excluding service tax.
---
### Important Notes:
* This was the treatment pre-GST regime. Under GST, **reverse charge mechanism applies**, and the principles are similar but under GST laws.
* Always check whether the non-resident invoice includes any tax component or not.
* If the invoice includes any tax, verify the nature of tax and who is liable to pay it.
---
**In short:**
For TDS on rent paid to non-resident under Section 195, deduct TDS on rent **excluding** service tax, consistent with the logic of Circular 4/2008.
---
If you want, I can help you draft a formal note or clarify more on this topic!
---
### Background:
* **Circular No. 4/2008 dated 28-04-2008** clarifies that for **Section 194I (rent payment to resident landlord)**, TDS should be deducted **excluding service tax**, because the landlord is just a collection agent for the government regarding service tax, and the service tax doesn’t form part of his income.
* But this circular specifically addresses payments under Section 194I to **residents**.
---
### What about payments to **Non-Residents** under **Section 195**?
1. **TDS on Rent Paid to Non-Resident (Section 195):**
* Payment to a non-resident is generally treated as **import of service**.
* In such cases, **service tax (now GST) liability is on the service recipient** (i.e., the payer in India), and not on the non-resident.
* The non-resident’s invoice might or might not include service tax, but typically **service tax is paid by the Indian recipient directly to the government** under reverse charge.
2. **TDS Deduction Basis:**
* Since service tax is paid separately by the Indian payer (under reverse charge), the **TDS should be deducted on the rent amount excluding service tax**.
* Service tax is not income for the non-resident; it is a tax collected by the government, so it should not be included in TDS calculation.
3. **Summary:**
| Situation | TDS Deduction Base |
| ---------------------------------------- | ------------------------------------------------------------------ |
| Rent to resident landlord (Section 194I) | Rent amount **excluding** service tax (per Circular 4/2008) |
| Rent to non-resident (Section 195) | Rent amount **excluding** service tax (since ST paid by recipient) |
---
### Application of Circular 4/2008 Logic to Non-Residents:
* The logic is somewhat similar because service tax is not income of the non-resident.
* However, since service tax on import of service is paid by the recipient under reverse charge, the non-resident generally does not charge service tax on the invoice.
* Therefore, TDS is calculated only on the rent portion, excluding service tax.
---
### Important Notes:
* This was the treatment pre-GST regime. Under GST, **reverse charge mechanism applies**, and the principles are similar but under GST laws.
* Always check whether the non-resident invoice includes any tax component or not.
* If the invoice includes any tax, verify the nature of tax and who is liable to pay it.
---
**In short:**
For TDS on rent paid to non-resident under Section 195, deduct TDS on rent **excluding** service tax, consistent with the logic of Circular 4/2008.
---
If you want, I can help you draft a formal note or clarify more on this topic!
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