Thursday, May 1, 2008

TDS ON RENT 194-I NOT INCLUDING SERVICE TAX


on Thursday, May 1, 2008

A long awaited clarification regarding tds on payment of service tax on rent u/s 194-I has been Issued by the CBDT.Details about the issue is given hereunder

Brief about section 194-I

  • Rent is to be deducted by all person on payment of rent except huf and individual who's sales is less than limit specified in section 44AB(tax audit)(40 lacs for business 10lac for professionals)
  • Rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of
    • (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,
  • section is applicable even in case of payee is owner or not.
  • Rate of tds is(upto payment made on 30.09.2009)
    • For use of any machinery or plant or equipment:10%
    • For other assets :in case of
      • Payee is Individual or Huf:15%
      • other case:20%
    • Rate of tds is( payment made on or after 01/10/2009 as per Budget 2009)
      • For use of any machinery or plant or equipment:2%
      • For other assets :10%
      • No need to add surcharge and Cess for resident deductee
    The rate of TDS wil be 20 per cent in al cases, if PAN is not quoted by the deductee w.e.f. 1.04.2010
  • Tax is deductible only if amount of rent paid is more than 12oooo

what was the issue

  • whether the service tax paid on rent of immovable property to landlord is to included while deducting tax at source.
what is clarified

and now clarification by CBDT has been issued that service tax should not be included while deducting tax at source on rent paid to landlord.

what are implications of clarification

Clarification has been issued in such a manner like that this issue were never a issue at all.what is wording please look

"Service tax paid by the tenant doesn't partake the nature of income of the landlord."

  • By this the CBDT has indirectly fixed a relation between Income and TDS whether it has been fixed intentionally or unintentionally,but this clue/wording can be used for other tds provisions by the assessee in his defense while not deducting tds on reimbursement of taxes so we can draw a conclusion that if person is getting mere reimbursement of taxes than tds should not be deducted.
  • For calculating the amount of 120000 now service tax amount should be excluded ,suppose if a person pay rent of rs 108000 to payee and 12.5% service tax on rent i.e 13500.in this case though total amount paid is 121500 but tds is not deductible after clarification as rent amount is only 108000 and less than 120000 prescribed in the section 194-I
Can we apply this clarification on section 194-J also

Update : Department has issued a clarification vide circular no 01/2014 dated 13.01.14 that in view of Rajasthan High court judgement TDS under section 194J shall not be applicable on service tax portion if that is indicated separately as per term and condition of agreement between payer and payee . (read Circular 01/2014 dated 13.01.2014 )


Update:05.07.2008:A clarification regarding applicability of circular 4/2008 has been issued by the dept to bombay chamber of commerce and clarified that section 194 j is not covered under circular 4/2008 .hence tds should be deducted on service tax under section 194J(professional fees)

  • Though the clarification has been issued for the section 194 -I only but ratio of the clarification can be applied in the case of 194-J also as in the case of section 194 -J also"Service tax paid by the client doesn't partake the nature of income of the professional"and "The professional only acts as a collecting agency for Government for collection of service tax."hence the tax should be deducted only on the amount of fees u/s 194 -J without including the service tax in it.

full text of the circular

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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. 4/2008, DATED 28-4-2008



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 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 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 doesn't partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of 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.



[F.No.275/73/2007-IT(B)]

please comment

Update : Department has issued a clarification vide circular no 01/2014 dated 13.01.14 that in view of Rajasthan High court judgement TDS under section 194J shall not be applicable on service tax portion if that is indicated separately as per term and condition of agreement between payer and payee.(read Circular 01/2014 dated 13.01.2014 )

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  1. hi! i m vineet i know which payment is not cliam the service tax.

    ReplyDelete
  2. Plz.let me know the service included in the rent is subject to deduction of TDS on total amount or not

    ReplyDelete
    Replies
    1. service tax on rent is not to be added for tds purpose . Means tds is deductible on rent without service tax as per circular 4/2008

      Delete
  3. plz, clarify that what is collecting agency???

    i mean it as registered service provider..

    whether its true or not ??

    ReplyDelete
  4. Hi I am a proprietor running a computer institute with turnover of 45 lacs. I am paying rent of Rs.1 Lac. Please let me know whether I should deduct TDS from Rent or not. I have TAN no.

    ReplyDelete
    Replies
    1. In our view ,no need to deduct tax as you are doing a business and not required to get your books audited as sales is less than than one crore .

      Delete
  5. sir i m earning 18000/pm as a teacher in private institution what is the amount of tds applicable on that sallery /pm please help me

    ReplyDelete
    Replies
    1. if you are employee of the school then tax will 18000*12=21600-200000=16000810%=1600 plus cess 3% =1648

      so per month tax should be 130/-

      Delete
    2. thanks sir i m teaching in private coaching they told me , they cut 10% TDS on my monthly income after one yr they give me cirtificate after that i may apply to return my exceeds amount which is paid as a TDS is there any such type of rules please help me

      Delete