NO TDS on Service Tax - CBDT Clarifies
CBDT had issued a Circular No. 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 on the amount of rent paid/payable without including the service tax component.
Representations/letters have been received seeking clarification whether such principle can be extended to other provisions of the Act also.
Board had actually clarified in Letter F.No. 275/73/2007-IT(B), dated 30-6-2008 as follows:
Deduction of Tax at source on Service Tax - The payments made under section 194-I differ significantly from payment made under section 194J in the way that in the case of 194-I TDS has to be deducted on any income paid as rent. However, in the case of section 194J TDS has to be deducted on any sum paid as professional and technical fees. The Board had decided to exclude TDS on service tax component on rental payment because it was construed that service tax payment cannot be regarded as income of the landlord. Since section 194J covers any sum paid, therefore the Board has decided not to extend the scope of Circular No. 4/2008, dated April 28, 2008 to such payment under section 194J.
Anyway Board seems to have forgotten this letter. They are reminded of a recent judgement of the Rajasthan High Court dated 01.07.2013, in the case of CIT(TDS) Jaipur vs Rajasthan Urban Infrastructure - , 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.
On re-examination of the matter, 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.
CBDT Circular No. 1/2014 in F. No.275/59/2012-IT(B), Dated: January 13, 2014