CBDT CLARIFICATION TAXPAYERS need not deduct tax at source on the service tax component of rentals. In a move that is expected to reduce the tax liability of many taxpayers like retailers who bear high rental costs, the Central Board of Direct Taxes (CBDT) has said tax deduction at source (TDS) must be made on rentals without including service tax.
The clarification comes in the wake of CBDT getting many representations from industry and field formations seeking to know if TDS provisions under Section 194-I of the Income Tax Act were applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
“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 Section 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax,” the circular said. Big confusion on liability
ET had reported the proposed move on April 10.
Put simply, if a taxpayer pays Rs 100 as rent, he is liable to pay service tax at 12%, taking the total outgo to Rs 112. There was confusion as to whether TDS would be on Rs 100 or Rs 112. As the field formations were in a dilemma, they had demanded a tax deduction on the total Rs 112 in some instances.
The circular will apply on any lease, sub-lease, tenancy or any other agreement or arrangement for the use of land, building (including factory building), land appurtenant to a building (including factory building), machinery, plant, equipment, furniture and fittings.
However, though the taxpayer gets the tax deducted as refund if his rental is not tax liable, the funds get blocked for that period. Source : Times of India |
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