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)]