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Hello Friends

We are here to share knowledge with Tax payers and basic Funda about taxes ,we doesn't claim ourselves as Expert,so please verify from your consultant before relying upon the information given on this blog.The basic aim is to tell about things which is available on net but some how we don't know about it ,like we have a very popular service know your pan address with input as dob and pan and many more .we will browse net for you and give you extract of useful things on your desk top through email or through our tool bar.Download our free tool bar which has facility like
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0 TOOL BAR FOR CA (ICAI COMMUNITY)

Dear Member ,

we have created a tool bar the main features of the tool bar is given below.Toll Bar has already been downloaded by members.

direct link to online calculators

  1. emi
  2. loan interest/emi/amount/period
  3. fixed deposit
  4. annuity
  5. recurring deposit calculator
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Direct link to know your
  1. pan
  2. pan application status(nsdl)
  3. pan application status uti
  4. tan
  5. tan application status
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  7. tax deposited/deducted/collected
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    1. e-payment of taxes
    2. e-filing of ITR(Income tax return)
    3. Income tax act
    4. Income tax rules
    5. Income tax notification
    6. ITR and challan form (FROM MY BLOG)
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    3. to do menu
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some of these features can be added or deleted and more links can be added in tool bar on request if beneficially for community at large.

if your screen DISPLAY SETTINGS are less than 1024*728 than set tool bar to shrink option.under drop down menu besides CA logo.

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Note:Those members who have already downloaded the SIMPLE TAX INDIA help tool bar they can also add this with earlier tool bar and can switch to one another . at a time one tool bar will be shown.
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0 E-PAYMENT OF TAXES MANDATORY FROM 1.04.08

As I have earlier written that e-payment will be made mandatory from April 1,2008,finally a press release has been issued by the CBDT, given hereunder. Two type of person now has to make payment of taxes through internet.

1.All Corporates.

2.person other than corporate but covered under section 44ab(compulsory Tax audit)

No minimum limit has been suggested in press release which i think is not correct and unjustified for small & medium business.In my view at least 100000 tax limit should be there,means the person who's tax payment is less than 100000 in a year can be pay taxes either online or of line .please comment.but there is no such limit given in press release.Please give ur comment on the issue.


press release is given hereunder for ready reference.Moreover it has been also clarified that epayment can be made through debit or credit card.

Whether tds is also liable to be paid online?????-A view,check what RBI thinks about it
Update:clarification on tds mandatory epayment and payment from other's bank accounts has been issued vide circular no 5/2008 dt 14/05/2008

No.402/92/2006-MC (05 of 2008)

Government of India / Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

***

New Delhi dated the 23rd January 2008

PRESS RELEASE

The optional scheme of electronic payment of taxes for income-tax payers was introduced in 2004. With a view to expand the scope of electronic payment of taxes, it is proposed to make the scheme mandatory for the following categories of tax-payers:-

(i) All corporate assesses;

(ii) All assesses (other than company) to whom provisions of section 44AB of the Income Tax Act are applicable.

2. The scheme of mandatory electronic payment of taxes for income-tax payers is proposed to be made applicable from 1st April, 2008.

3. Tax-payers can make electronic payment of taxes through the internet banking facility offered by the authorized banks. They will also be provided with an option to make electronic payment of taxes through internet by way of credit or debit cards.

XXX

RELATED ARTICLES

HOW TO DEPOSITE ONLINE INCOME TAX
For e-payment of taxes person should have internet banking in one of the following bank.At present only following banks are authorized to the receive Income tax Payment online.

1. Axis Bank
2. State Bank of India
3. Punjab National Bank
4. Indian Overseas Bank
5. Canara Bank
6. Indian Bank
7. Bank of India
8. Corporation Bank
9. State Bank of Bikaner & Jaipur
10. State Bank of Travancore
11. State Bank of Indore
12. Vijaya Bank
13. HDFC Bank
14. Oriental Bank of Commerce
15. State Bank of Patiala
16. IDBI Bank
17. Union Bank of India
18. Bank of Baroda

list is day by day increasing so check with your bank
----------------------------------------------------------

official words on online tax payments

Note: Credit/Debit card payments are not yet available
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0 TDS IS TO PAID MANDATORY ONLINE OR NOT?????

Dear friends,


Update:clarification on tds mandatory epayment has been issued vide circular no 5/2008 dt 14/05/2008


As you may know that E-PAYMENT OF TAXES has been madeMANDATORY FROM 1.04.08 for certain category of tax payers i.e

1.All Corporates.

2.person other than corporate but covered under section 44ab(compulsory Tax audit)

The e-payment means pay the taxes through net facility /internet/net banking or Credit or Debit card .Payment Facility to taxes through credit and debit card is yet to be finalised by the banks though allowed by income tax deptt. /CBDT in his circular/rules.

Now we are discussing here that whether tds (Tax deducted at source) is also covered under mandatory payment of income tax or not.

BI has come up with a circular to implement the scheme of online payment of Income Tax and instruct the banks "not to receive payment from the corporate assesse in physical challan at all".In circular its is strongly written in bold letters that"Assesses who's pan's 4th digit is "C" can not deposit tax in to bank branches manually,Physical challans from such assesses shall not be accepted across the counter.

Moreover in circular RBI has instructed the banks that in case of person covered under section 44AB and required to deposit tax online ,there is no indication in pan itself ,so in this case taxpayers words will be final.

so friends after this circular corporate assesses has no option left to deposit tax otherwise than e-payment.

but this circular has raised a question once again .

Whether tds should also be deposited online compulsorily ???????

 In rules issued by the CBDT taxes means taxes as explained in section 2(43) ,

  • further instruction issued on website by income tax deptt "how to pay tax online"(link given at the bottom)define e-payment of taxes as under.
  • "All Direct Taxes e.g. Income Tax, Corporate tax, FBT, BCTT (TDS, Advance tax, self assessment tax) to be paid online using net banking facility"
  • But what RBI circular refer only pan while restricting corporate assesse from depositing tax in branch and says that forth digit of the pan of the corporate assesse is "C" and banks should not receive physical challan from such assessee .
  • But TDS(tax deducted at source) is deposited against a TAN ,and TAN has no indication whether it is of the corporate assesse or otherwise.and RBi has not mentioned any think about what bank should do in the case of TAN /deposit of tax deducted at source by corporate assessee so what we may conclude from RBI circular
    • that RBI thinks that TDS is not covered under the compulsorily online payment of taxes.
    • that RBI has just missed to mention about Tan.

By not mentioning about the TAN in its circular ,RBI has once again fueling this debate,

Whether tds should also be deposited online compulsorily ???????

I am not concluding any thing here legally but as I as am strong supporter of online payment of taxes I may conclude here that all taxes including TDS (tax deducted at source) should be deposited online due to benefit attached with online payments not only by the person who are are directed to do so but also voluntarily .

please comment


HOW TO DEPOSITE ONLINE INCOME TAX


please comment after reading the following circular.

Mandatory electronic payment of tax by certain Categories of taxpayers w.e.f. 1-4-2008

CIRCULAR NO. DGBA.GAD. NO. H. 10875 / 42.01.038 /2007-08, DATED 10-4-2008

As you are aware, the Central Board of Direct Taxes vide their Notification No. 34/2008 dated 13-3-2008 (copy enclosed) have made electronic payment of taxes mandatory for the following categories of tax payers w.e.f. 1-4-2008 :

a. A company

b. A person (other than a company), to whom provisions of section 44AB are applicable.

2. In this regard the following instructions may be kept in mind while implementing the Government Notification:

(i) the status of all corporate taxpayers can be identified from the name itself. Further, the 4th digit of the PAN of all corporate assessee would necessary be “C”. Physical challans from such assessees shall not be accepted across the counter.

(ii) In case of tax payers covered under section 44AB, there should be no insistence of any proof of eligibility to pay tax through physical challans at the bank counters. The responsibility of making e- payment rests primarily with the taxpayer. Hence, the word of taxpayers should be taken as final.

(iii) the acknowledgement for e-payment should be made available immediately on screen by the bank concerned.

(iv) the transaction id of e-payment should be reflected in the bank’s statement.

(v) each bank should prominently display on its e-payment gateway page, the official /s to be contacted in case the taxpayer faces any difficulty in making the payment, completing the e-transaction, generating the counterfoil etc.

(vi) each bank should give the ITD and NSDL a list of officials with contact particulars, to be contacted if required for any problems faced by ITD or taxpayers.

-----------------------------------------------------------------------------

official words on online tax payments

Note: Credit/Debit card payments are not yet available
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0 SAVE TAX:LONG TERM CAPITAL LOSS FROM SHARES?

By reading the title of the post you will be thinking that there is no tax on long term capital gain on shares then what is the relation between tax saving and long term capital loss?

But after reading the next few lines you will definitely understand the trick(tax planning tip).The trick is legitimate method to save the tax.

Brief Provision of Tax on LTCG on shares

To understand this tip first of all I would like to discuss the taxabilty provisions on Long term capital Gain/Loss From shares and securities

  1. From 1.10.2004 onwards sale of a long term security (means where holding period is more than 12 month) ,on which STT paid (Securities Transaction Tax) is not liable for tax and fully exempted from Income Tax.
  2. As the long term capital gain from the sale of securities is exempted from tax ,loss from such deals can not be adjusted from the other capital gain and can not be carry forward either.
  3. Securities Transaction tax (stt) is payable for transaction made through stock exchanges.

what is the trick/tip

  • if you are planning to sell the shares on which you will have long term capital loss ,then sell them out of the exchange without paying STT and save tax .lets study with a example.

Example:Rajiv has sold a shares for 300000 which he has purchased for 500000 ,13 months back.similarly he has also sold a land for 500000 which he has purchased for 100000 four year ago.Rajiv has also salary income for Financial year 2008-09.

calculate tax in two situations

  1. shares has been sold through stock exchange means stt paid.
  2. shares has been sold to friend out of exchange.

Ans:Case -1:Calculation of tax Case one(through stock exchange)

income from salary =300000

Income from capital gain on capital gain =400000

(500000-100000)

tax liability=on 150000-300000 @ 10%=15000

20% on 400000 LTCG =80000

Net tax liability=15000+80000=95000

long term loss from shares sold through exchange being exempted income can not be adjusted from LTCG on land,and not not be carry forward either.

Case-2:(shares sold to friend out of stock exchange ) no stt paid

Income from salary =300000

Income from Long term capital gain

LTCG from land =400000

Less:LTCL from Shares=200000

net LTCG =200000

tax liability

salary=10% on 300000-150000=15000

Ltcg=20% on 200000 =40000

net tax liabilty =55000

so in First case Tax Liability is 95000 where as in second case the tax liability is 55000 means saving of 40000 tax by not selling shares through exchange !!!

  • Further if we have sold share out of exchange this year and made a loss and have no other long term capital gain then we can carry forward the loss for next eight years and adjust the loss from other long term gain,means the benefit is definite if we adjust it in this year or next eight year.

Note:

  1. To avoid complication in calculation Indexation on cost of capital assets has not been done.
  2. Shares and securities word has been used interchangeable though differently defined under the act.so read accordingly.
  3. Sucharge and Cess on tax has also not shown to avoid complications.
  4. You can also save tax from short term capital loss from same trick.
  5. Short term capital gain saving another tip is here.

Dear friends I have just provided the clue further elaboration can be done at your end.

please comment

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0 BUY HOUSE SAVE CAPITAL GAIN ON SALE OF HOUSE

Dear Friends,

In this post I am trying to cover all the issue related to saving of tax under section 54 of Income tax act-1961 ,if any issue left of you have a different opinion than our you may please record in comment section.

As per section 54 capital gain arising from the sale of the long term residential property can be saved if we buy or construct a residential house property for long term form the capital gain amount.



Important points in this regard are given below

  1. Section benefit can be availed only by Individual and HuF assessee
  2. Sale should be of long term residential building or lands appurtenant thereto
  3. Income of house property should be chargeable under the head of "income from house property"
  4. Capital gain arising from sale of above said property will be saved up to the amount used in to
    1. purchase a residential house within year before the date of transfer of old house or within two year after the date of transfer of old house.or
    2. construct a house with in three year from date of transfer of old house property.
  5. Capital gain is saved up to the amount which is used in to buy /construct new house,if amount used for house purchased/construction is less than the amount of capital gain than the balance amount will be taxed as long term capital gain.
  6. If the new house will be sold within three year from the date of purchase or construction as the case may be than while calculating capital gain of the cost of new house will considered as under.
    • If cost of new house is less than the capital gain arising from old house:cost of new house will be nil.
    • if the cost of new house is more than the capital gain arising from old house :cost of new house will be :total cost of purchase/construction minus capital gain on sale of old asset .
  7. If amount of capital gain arising from the sale of old asset is not used as per point 4 before the due date of furnishing of income tax return or furnishing of return which ever is earlier than the balance unused amount should be deposited in designated banks under capital gain account scheme 1988 .
  8. if capital gain amount unused has not been deposited under the scheme as per sr no 7 than the amount of capital gain will be taxable in the previous year as long term capital gain it self no matter it is actually used by the assessee for the purpose of sr no 4
  9. if the amount deposited in capital gain scheme as per sr no 7 wholly or partly has not been used with in the three year from the date of transfer of old asset and purpose given under sr no 4 than the unused amount will be taxable in the hand of the assessee in the previous year in which three years expires from date of transfer of old asset as long term capital gain.
points emerged from court cases.

  1. Exemption is allowable in full even if house is partly purchased and partly constructed - The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residen­tial house is partly constructed or partly purchased - B.B. Sarkar v. CIT [1981] 132 ITR 150 (Cal.).

  2. When more than one house is purchased - In case the assessee has purchased more than one house/flat within the period prescribed in section 54, it is for the assessee to claim relief against the purchase of any one of the house/flat provided the other condi­tions mentioned in the section are satisfied - K.C. Kaushik v. P.B. Rane, ITO [1990] 84 CTR (Bom.) 62.

  3. Exemption is allowable even if a share in new property is pur­chased - When the Act enables an assessee to get exemption from payment of tax in respect of purchase or construction of a residential house, purchase or construction of a portion of the house should also enable the assessee to claim the exemption. It is possible that a person may not be in a position to purchase the whole residential house at a time and in the circumstances an assessee might purchase a portion of the house or some interest in the house. Thus, where the assessee sold a house and from the sale proceeds purchased 15 per cent undivided share in a house, proper­ty from her husband and her son, and she was earlier residing in that house exemption under section 54 can be allowed - CIT v. Chandanben Maganlal [2000] 245 ITR 182 (Guj.)
  4. Exemption on capital gains could not be refused to the assessee simply on the ground that the construction of the new house had begun before the sale of the old house - CIT v. H.K. Kapoor [1998] 150 CTR (All.) 128

  5. u The date of commencement of the construction of the new house is not material. To get the benefit of section 54, the assessee must have constructed the new house within the prescribed period from the date of sale of the old house - CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.).

  6. Purchase need not necessarily be on ‘cash and carry’ basis - The word ‘purchase’ in section 54 must be interpreted in its ordinary meaning, as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. There is no stress in the section on ‘cash and carry’. Thus, where the eldest brother in a coparcenary compris­ing four brothers sold his own house and acquired the common house from his three brothers who executed release deeds for a consideration, there was a ‘purchase’ by the eldest brother of the share of each of the brothers for a price - CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46 (SC).


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examples

we will add examples in coming days
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0 DISALLOWANCE U/S 40(a)(ia) TDS DEFAULT ALLOWED

DEAR FRIENDS

Good News for all of us.While passing the finance bill 2008 as provision relating to section 40(a)(ia) has been amend to give us relief from minor tds deduction defaults from retrospective effect from assessment year 2005-06 means since inception of this controversial amendments.
Updates From Finance Act 2010 given at the end,position has changed,now you can deposit TDS, related to any month of previous year by due date for Income return Filing date and can claim expense in previous year.And this provision is proposed to be applicable from financial year 2009-10.

what was the position earlier

as per section 40(a)(ia) all the expenses u/s 30-38 will be disallowed if
  1. tds has not been deducted
  2. tds has been deducted but has not been paid during previous year or in subsequent year in time as prescribed in section 200.
on
  • Interest,
  • commission,
  • brokerage,
  • rent,
  • royalty,
  • fees for technical/professional services payable to a resident ,
  • amounts payable (for carrying out any work contract)
to a resident contractor/sub-contractor

provided that
  1. if tax has been deducted and paid in subsequent year or
  2. deducted in previous year but paid in subsequent year after expiry of the time limit u/s 200
then expenditure will be allowed in the year of payment of tds.

what is position now after changes in budget



Tax is deductible but not deducted

  • No deduction in the current previous year
  • If tax is deducted in any subsequent year, the expenditure will be deducted in the year in which TDS will be deposited by the assessee with the Government.

Tax is deductible (and is so deducted) during the last month (i.e., in the month of March) of the previous year but it is not deposited on or before the due date of submission of return of income under section 139(1)

  • No deduction in the current previous year
  • If tax is deposited with the Government after the due date of submission of return of income, the expenditure will be deductible in that year in which tax will be deposited.

Tax is deductible (and is so deducted) during any month but other than the last month (i.e., any time before March 1) of the previous year but it is not deposited on or before March 31 of the previous year

  • No deduction in the current previous year
  • If tax is deposited with the Government after the end of the current previous year, the expenditure will be deductible in that year in which tax is deposited.
though some relief has been given that in case we pay tds on or before due date of filing of the income tax return expenditure will be allowed in the same previous year but in case of non deduction of the tds when it is deductible then expenditure will be disallowed fully.


suppose xyz ltd has paid for work of 100000 to abc ltd for some non recurring work and forget to deduct tds ,the expenses of 100000 will be disallowed to xyz ltd.if there will no further transaction between xyzltd and abc ltd ,in that case xyz ltd can not deduct tax from abc ltd hence can not claim expenditure in subsequent year also.

my point is that tds is not a source of revenue for income tax department ,they only collect it as a advance tax on behalf of the firm abc.if abc ltd has discharged his tax liability fully by paying tax
then there will be no loss of revenue to the state .these provision seems valid where the deductee is non resident and tax can not be recovered from non resident.so in the above example dis allowance of the expenditure to xyz ltd even abc ltd has discharged his tax liability fully is not justified but that is the position of law we can not do nothing in this and have to bear with these provisions .so we should be more care full in deduction of tax so that all genuine expenditure will allowed while calculating income of the previous year.

The above interpretation is also confirmed by taxworry.com ,check here

Updates From Finance Act 2010

Further Good News ,In budget 2010 ,Now it is  proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

RELATED CLAUSE REPRODUCED HEREUNDER

12. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia),—
(a) for the portion beginning with the words “has not been paid,—” and ending with the words “the last day of the previous year”, the words, brackets and figures “has not been paid on or before the due date specified in sub-section (1) of section 139” shall be substituted;
(b) for the proviso, the following proviso shall be substituted, namely:—
”Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in subsection (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”.
Read all changes of Budget 2010 related to Income Tax from here 
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0 SERVICES TO ASSOCIATED ENTERPRISES TAXABLE

Earlier the services provided to "customers" and "clients" are taxable but now in budget a new provision has been inserted in which it is stated that services provided to associate enterprises are also taxable and to give effect to this provision a amendment has been done that service tax is payable on receipt of credit in the book of accounts .this amendment will be applicable from 10.05.2008.
The following points main points are comes from these amendments

  • Section 67 has been amended. As per this amendment, service tax is required to be paid by the person liable to pay service tax on the taxable services provided even if the consideration for the taxable services provided is not actually received.
  • In such cases, service tax is required to be paid immediately after crediting/debiting of the amount in the books of accounts or receipt of payment, whichever is earlier.
  • This provision is restricted to transaction between associated enterprises
  • This amendment Comes into force w.e.f. 10th May, 2008.
  • Removal of doubts stating that any payment received towards the value of taxable service shall include any amount credited or debited, as case may be, to any account, whether called 'Suspense account' or by any other name, in the books of account of a person liable to pay service tax [Refer Explanation to Rule 6(1) of the Service Tax Rules, 1994].

optional service tax scheme to person providing foreign exchange sale & purchase has also been notified ,now they can pay 0.25 % service tax on total gross currency exchanged by them.This option has been started as you may aware of that money changer generally don't show there charges to client billing and only give buy rate and sell rate and earn through arbitrage between buy rate and sell rate.


text of the notification is given hereunder

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]

Government of India

Ministry of Finance

(Department of Revenue)

New Delhi, the 10th May, 2008

Notification No.19/2008-Service Tax

G.S.R. (E).- In exercise of the powers conferred by sub-sections (1) and (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules to further amend the Service Tax Rules, 1994, namely :-

1. (1) These rules may be called the Service Tax (Second Amendment) Rules, 2008.

(2) Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette.

2. In the Service Tax Rules, 1994,-

(i) in rule 4A, for the words “to a customer” wherever they occur, the words “to any person” shall be substituted with effect from the 16th day of May, 2008;

(ii) in rule 4B, for the words “to the customer”, the words “to the recipient of service” shall be substituted with effect from the 16th day of May, 2008;

(iii) in rule 6,-

(a) in sub-rule (1), after the third proviso, the following Explanation shall be inserted, namely:-

“Explanation.- For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called ‘Suspense account’ or by any other name, in the books of account of a person liable to pay service tax.”;

(b) after sub-rule (7A), the following sub-rule shall be inserted with effect from the 16th day of May, 2008, namely:-

“(7B). The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorized money changer, referred to in sub-clauses (zm) and (zzk) of clause (105) of section 65 of the Act, shall have the option to pay an amount calculated at the rate of 0.25 per cent. of the gross amount of currency exchanged towards discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of Chapter V of the Act:

Provided that such option shall not be available in cases where the consideration for the service provided or to be provided is shown separately in the invoice, bill or, as the case may be, challan issued by the service provider.

Illustration

Buying rate $US 1 = Rs.38, selling rate $US 1 = Rs.40

(i) Person exchanged $100 for equivalent rupees

Transaction value = Rs.3800 (Rs.38 x 100)

Service tax payable = Rs.9.5 (0.25% x 3800)

(ii) Person exchanged equivalent rupees for $100

Transaction value = Rs.4000 (40 x 100)

Service tax payable = Rs.10 (0.25% x 4000).”.

[F. No. B1/5/2008-TRU]

(G.G. Pai)

Under Secretary to the Government of India

Note.- The principal rules were notified vide notification No.2/94-Service Tax, dated the 28th June, 1994 and published in the Gazette of India, Extraordinary vide number G.S.R.546 (E), dated the 28th June, 1994 and were last amended vide notification No.4/2008-Service Tax, dated the 1st March, 2008 and published vide number G.S.R. 148(E), dated the 1st March, 2008.


other amendment in budget


24/2008 - Service Tax, dated 10-05-2008 Amends notification No.41/2007-Service Tax, dated the 6th October, 2007
23/2008 - Service Tax, dated 10-05-2008 Amends certain notifications
22/2008 - Service Tax, dated 10-05-2008 Amends notification No. 1/2006-Service Tax, dated the 1st March, 2006
21/2008 - Service Tax, dated 10-05-2008 Rules further to amend the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006
20/2008 - Service Tax, dated 10-05-2008 Rules further to amend the Export of Services Rules, 2005
19/2008 - Service Tax, dated 10-05-2008 Rules to further amend the Service Tax Rules, 1994
18/2008 - Service Tax, dated 10-05-2008 Appoints the 16th day of May, 2008, as the date on which the provisions of the said Act shall come into force
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2 TDS ON RENT 194-I NOT INCLUDING SERVICE TAX

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: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)]

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