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TDS on Internet Charges

28 August 2007

Do the internet charges paid to the service providers on monrthly basis like Reliance, VSNl(who charge service Tax) are liable to deduct tax at source?

I got this doubt while undertaking the audit of a software company, where in the company had deducted TDS on its internet bills.I took a stand saying that it should not be deducted. Is it correct if no under which section it should be deducted?

Is it under 194J or 194I???

Varun

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20 Replies

CA.Saibaburao Nanduri (Chartered Accountant) (3847 Points)
Replied 28 August 2007

Yes. Under section 194 J (1) Fees for professional services technical services or (2) Royalty or (3) any sum ref.to in section 28 v0(va) {payable by persons other tan indsividual/HUF 194 I relates to rent payable by persons other than individual/HUF

1 Like

MAHENDRA IYER (SERVICE) (315 Points)
Replied 28 August 2007

No, TDS will not apply. Payments for use of standard facilities by the public at large in which some form of technical service is inherent are not covered under section 194J. It has also been held in the case of Skycell Communications Ltd. v. Deputy CIT[2001] 251 ITR 53 (Mad.).

2 Like

K. Madhavan (Service Industry) (60 Points)
Replied 30 August 2007

There is no need to deduct tax at source under either Sections (194C or 194J) in respect of payments to Internet and telephone service providers. Section 194J requires that tax be deducted at source while making any payment or at the time of credit of any sum by way of fees for professional or technical services. Apparently, payments to VSNL/BSNL for use of Internet/telephone services cannot be termed as fees for professional service. As regards fees for technical service, Section 194J provides that the definition contained in explanation 2 to Section 9(1)(vii) shall apply to this section as well. In this connection, there is the Madras High Court decision in the Skycell Communications Ltd v DCIT (2001 251 ITR 53 Madras) case which relates to cellular telephone services. The court in this case observed that in the modern day world almost every facet of one's life is linked to science and technology inasmuch as the things used and relied upon in everyday life or the result of scientific and technological development. Almost all instruments and gadgets used to make life easier are the result of scientific invention or development and involve the use of technology. The court also observed that the installation and operation of sophisticated equipment with a view to earn income by allowing customers to utilise the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee. The subscriber, in such a case, is not concerned about the complexity of the facility installed, but only wishes to use the telephone facility while subscribing for a cellular telephone. In fact, in this case, the court observed that Section 194J will not cover the charges paid by the average householder or consumer for utilising the products of modern technology such as telephone, fixed or mobile, cable TV, the Internet, the automobile, the rail, the aeroplane, consumption of electrical energy, and so on.

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(Guest)

kalpana hegde (chartered accountant) (32 Points)
Replied 02 July 2008

How you deduct TDS on internet bills ? No TDS on telephone or internet bills but service tax attracted

kalpana hegde (chartered accountant) (32 Points)
Replied 02 July 2008

can anybody tell me what is sercice tax exemption limit

(Guest)

Originally posted by :Sweettalker276

Do the internet charges paid to the service providers on monrthly basis like Reliance, VSNl(who charge service Tax) are liable to deduct tax at source? I got this doubt while undertaking the audit of a software company, where in the company had deducted TDS on its internet bills.I took a stand saying that it should not be deducted. Is it correct if no under which section it should be deducted?Is it under 194J or 194I??? Varun

In the context of mobile service providers, it has been held by the Madras High Court in Skycell Communications Ltd vs DCIT (2001 251 ITR 53 Madras) that no tax needs to be deducted at source under Section 194J while making payment to cellular service providers. This decision was rendered on the reasoning that the user does not get a technical service in the real sense though there may be a substantial amount of technology involved in providing the service from the point of view of the service provider.

This decision will apply not merely on payments to mobile service providers but also to fixed line telephones, Internet connection and electricity. So far as deduction of tax at source under Section 194C is concerned, the same will not arise since this section only requires deduction where there is a contract for any work. In all these cases, though there is a contract, the contract is not for any work but for providing a service and, hence, Section 194C will not apply. There will, therefore, be no need to deduct tax at source on such payments

(Guest)

with reference to Madras High Court in Skycell Communications Ltd vs DCIT (2001 251 ITR 53 Madras) can I have additional information - such as WP#, Name of the Judge, year of judgement etc... for reference.. Please...

Narayan (SENIOR ACCOUNTS EXECUTIVE) (20 Points)
Replied 01 December 2008

Originally posted by :Sweettalker276
"	Do the internet charges paid to the service providers on monrthly basis like Reliance, VSNl(who charge service Tax) are liable to deduct tax at source? I got this doubt while undertaking the audit of a software company, where in the company had deducted TDS on its internet bills.I took a stand saying that it should not be deducted. Is it correct if no under which section it should be deducted?Is it under 194J or 194I??? Varun	"

popular (job) (43 Points)
Replied 07 May 2009

10 lakhs

subodh (accountant) (22 Points)
Replied 07 May 2009

dear sir,how calculate tds on salary.

if my salary is 2 lacs p.a and 80c invest 30 thousand than what is deduct tds on my salary?

shweta jain (Assisstant Audit Manager) (124 Points)
Replied 07 May 2009

salary : 200000

less: ded u/s 80c : 30000

net taxable income : 170000

basic exemption limit for individual : 150000

tax @ 10% on 20000 (170000-150000) : 2000
no surcharge

education cess @ 3% of tax : 60

total tax : 2060

chetan soni (service) (3784 Points)
Replied 07 May 2009

Yes, Internet serivces are covered in 194J. Company has followed the section notes & deducted the TDS on internet charges. The rate for this should be 10%, just check that. In case the rate is lower than you need to see the lower deduction certificate issued by concern ITO.

VIPUL BUBNA (MANAGER TAXATION) (119 Points)
Replied 07 May 2009

It is a disputed matter but during the TDS assessment Income Tax department is asking TDS on Internet charges under section 194J as a technical service, except on BSNL and MTNL