No TDS on service tax paid on rent u/s 194I income tax circular

The income tax department has issued a circular no. 1/2014 dated 13 January 2014 regarding clarification of is TDS applicable on service tax paid on rent or not? Income tax department clarifies with the decision of Honorable Rajasthan High court decision . Full circular is as under.

SECTION 194-I OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - RENT – CLARIFICATION REGARDING TDS UNDER CHAPTER XVII-B ON SERVICE TAX
COMPONENT COMPRISED OF PAYMENTS MADE TO RESIDENTS 
CIRCULAR NO. 1/2014 [F.NO.275/59/2012-IT(B)], DATED 13-1-2014 

The Board had issued a Circular No.4/2008 dated 28-04-2008 wherein it was clarified that tax is to be 
deducted at source under section 194-I of the Income-tax Act, 1961 (hereafter referred to as 'the Act'), 
on the amount of rent paid/payable without including the service tax component. 

Representations/letters has been received seeking clarification whether such principle can be extended 
to other provisions of the Act also. 

2. Attention of CBDT has also been drawn to the judgement of the Hon'ble Rajasthan High Court dated 
1-7-2013, in the case of CIT (TDS) Jaipur v. Rajasthan Urban Infrastructure (Income-tax Appeal 
No.235, 222, 238 and 239/2011), holding that if as per the terms of the agreement between the payer 
and the payee, the amount of service tax is to be paid separately and was not included in the fees for 
professional services or technical services, no TDS is required to be made on the service tax 
component u/s 194J of the Act. 

3. The matter has been examined afresh. In exercise of the powers conferred under section 119 of the 
Act, the Board has decided that wherever in terms of the agreement/contract between the payer and the 
payee, the service tax component comprised in the amount payable to a resident is indicated separately, 
tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid/payable without 
including such service tax component. 

4. This circular may be brought to the notice of all officer for compliance. 

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1 comments:

  1. No TDS on Service Tax Element in specific section i.e. 194I - Rent and 194J – Professional / Technical Services, if following conditions are satisfy.

    1. There should be a contract / agreement between the two party.
    2. Clause in contract / agreement should continue with “Service Tax will levied separately as per the prevailing rate at the time of generating of an invoice(s) / due date of an invoice(s)”.
    3. Invoice should clearly indicate the Service Tax Number and Service Tax Amount separately. No Inclusive of Service Tax word to use.
    4. Invoice should contains “No TDS on Service Tax is levied as per Circular No. 1/2014 Dated 13-01-2014 issued by CBDT. Therefore Only Principal Amount is applicable for TDS on Professional Service Rendered / Rent Income”.

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