CIRCULAR NO. 4/2008, DATED 28-4-2008
Section 194-I of the Income-tax Act, 1961 – Deduction of tax at source – Rent – Clarification on deduction of tax at source (TDS) on service tax component on rental income under section 194-I
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).
- The matter has been examined by the Board. As per the provisions of section 194-I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in section 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
whether or not any or all of the above are owned by the payee;
- 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 rentpaid/payable without including the service tax.
- These instructions may be brought to the notice of all officers working in your region for strict compliance.
- 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.