TDS u/s 194-I
This query is : Resolved
04 July 2011
Hi,
It is well settled that TDS u/s 194I is not applicable on Service Tax Portion.
Further, there is a doubt that in case of lease agreements whether TDS has to be deducted on VAT/CST portion.
Please tell me the relevant CASE LAW.
Thanks
It is well settled that TDS u/s 194I is not applicable on Service Tax Portion.
Further, there is a doubt that in case of lease agreements whether TDS has to be deducted on VAT/CST portion.
Please tell me the relevant CASE LAW.
Thanks
05 July 2011
I think the circular of board is in connection with Service Tax only and that too is in respect of service tax on rental income only. The clarification of board is thus very much specific and should not be tried for any other taxes like VAT, CST etc. In order to avoid litigation, it is advisable to deduct TDS when it is not expressly exempt.
05 July 2011
Is there any case law in this regard
28 July 2025
Regarding **TDS under Section 194-I** (rent), your question about whether VAT/CST is includible for TDS deduction and relevant case laws is a commonly debated topic.
---
### Key Points:
* **TDS u/s 194-I is deductible on ‘rent’ paid or payable for use of any land, building, etc.**
* The **CBDT has clarified** that **service tax portion should not be included** for deduction of TDS under Section 194-I. (Circulars like CBDT Circular No. 715/1995 and subsequent clarifications)
* However, **VAT/CST is a sales tax levied on goods**, and the legal position on whether it should be included for TDS is less clear and often depends on the specific transaction and agreement.
---
### On VAT/CST inclusion in TDS base for rent:
* The Income Tax Act and CBDT Circulars **do not explicitly exclude VAT/CST from the TDS base** for Section 194-I, unlike service tax.
* VAT and CST are **statutory levies payable to the government** but imposed on the supplier of goods/services.
* In the case of rent, VAT/CST may be levied on the amount payable to the landlord if VAT is applicable on rental services in that state.
---
### Case Laws and Judicial Views:
1. **Reliance Infratel Ltd. vs. ITO \[2012] (ITAT Mumbai):**
* Held that service tax is a statutory levy and should not be considered as income of the recipient; thus excluded for TDS.
* Did not deal specifically with VAT/CST.
2. **Hindustan Petroleum Corporation Ltd. vs. CIT (2001) 247 ITR 781 (SC):**
* Regarding TDS under Section 194-I, the court said the amount on which TDS is to be deducted is “rent,” and it should not include any amount not part of “rent.”
* But VAT/CST was not the subject here.
3. **Practical Approach:**
* Since no clear judicial pronouncement explicitly excludes VAT/CST from TDS under Section 194-I, companies generally **include VAT/CST in the rent for TDS deduction** to avoid litigation.
* CBDT Circulars clarify exclusion only for service tax.
---
### Summary:
| Tax Type | Inclusion in TDS u/s 194-I Base? |
| ----------- | ------------------------------------------------- |
| Service Tax | Excluded (CBDT Circulars, judicial view) |
| VAT / CST | No clear exclusion; generally included to be safe |
---
### Suggestion:
* Unless there is explicit exemption, deduct TDS on **total amount payable including VAT/CST** to avoid demand or penalty.
* Service tax/GST portion should definitely be excluded.
* Maintain clear documentation and seek specific professional advice if the amounts are substantial.
---
If you want, I can help draft a note or summary for your organization based on this or assist with references. Would you like that?
---
### Key Points:
* **TDS u/s 194-I is deductible on ‘rent’ paid or payable for use of any land, building, etc.**
* The **CBDT has clarified** that **service tax portion should not be included** for deduction of TDS under Section 194-I. (Circulars like CBDT Circular No. 715/1995 and subsequent clarifications)
* However, **VAT/CST is a sales tax levied on goods**, and the legal position on whether it should be included for TDS is less clear and often depends on the specific transaction and agreement.
---
### On VAT/CST inclusion in TDS base for rent:
* The Income Tax Act and CBDT Circulars **do not explicitly exclude VAT/CST from the TDS base** for Section 194-I, unlike service tax.
* VAT and CST are **statutory levies payable to the government** but imposed on the supplier of goods/services.
* In the case of rent, VAT/CST may be levied on the amount payable to the landlord if VAT is applicable on rental services in that state.
---
### Case Laws and Judicial Views:
1. **Reliance Infratel Ltd. vs. ITO \[2012] (ITAT Mumbai):**
* Held that service tax is a statutory levy and should not be considered as income of the recipient; thus excluded for TDS.
* Did not deal specifically with VAT/CST.
2. **Hindustan Petroleum Corporation Ltd. vs. CIT (2001) 247 ITR 781 (SC):**
* Regarding TDS under Section 194-I, the court said the amount on which TDS is to be deducted is “rent,” and it should not include any amount not part of “rent.”
* But VAT/CST was not the subject here.
3. **Practical Approach:**
* Since no clear judicial pronouncement explicitly excludes VAT/CST from TDS under Section 194-I, companies generally **include VAT/CST in the rent for TDS deduction** to avoid litigation.
* CBDT Circulars clarify exclusion only for service tax.
---
### Summary:
| Tax Type | Inclusion in TDS u/s 194-I Base? |
| ----------- | ------------------------------------------------- |
| Service Tax | Excluded (CBDT Circulars, judicial view) |
| VAT / CST | No clear exclusion; generally included to be safe |
---
### Suggestion:
* Unless there is explicit exemption, deduct TDS on **total amount payable including VAT/CST** to avoid demand or penalty.
* Service tax/GST portion should definitely be excluded.
* Maintain clear documentation and seek specific professional advice if the amounts are substantial.
---
If you want, I can help draft a note or summary for your organization based on this or assist with references. Would you like that?
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