Tds on Rent Deposit

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ayyappa (Querist)
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28 July 2010 We taken a building for rent by depositing Rs.3000000/- as a deposit to building owners in the year-1995.
Our file is selected for scrutiny for the A.Y.2008-09.The Incometax officer wants to add these deposit as income as we have not deducted the Tds on the deposit.

MY QUESTION IS
1.IS THE ITO HAS THE RIGHT TO ADD DEPOSIT AS INCOME AFTER 13 YEARS.
2.IS THE TDS ON RENT IS THERE IN THE YEAR 1995.IF YES WHAT IS THE LIMIT

ayyappa

ayyappa (Querist)
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28 July 2010 PLEASE REPLY

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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28 July 2010 The tax is to be deducted from the actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS. However, if the deposit is refundable, no tax is required to be deducted at source. If the deposit is non-refundable, it also takes the character of payment for the user of premises and is subject to TDS. [Circular No.718 dt.22-8-1995].

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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28 July 2010 However, interest-free deposit given by a tenant to the landlord which has to be adjusted at the time the tenant vacated the premises forever, cannot be treated as an advance rent so as to require the assessee to deduct tax at source therefrom. P.S.Cars (P) Ltd. v ITO [2005] 4 SOT 143 (Delhi).

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