Dayal R Kundani

Earlier views of CBDT

CBDT 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 on the amount of rent paid/payable without including the service tax component.

The Board had actually clarified in Letter F.No. 275/73/2007-IT(B), dated 30-6-2008 as follows

Since section 194J covers any sum paid, therefore the Board has decided not to extend the scope of Circular No. 4/2008 dated 28.04.2008 to such payment under section 194J.

What Changed the above

The recent judgment of the Rajasthan High Court dated 01.07.2013, in the case of CIT (TDS) Jaipur vs M/s. Rajasthan Urban Infrastructure, held 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.

Considering the above, this Circular by CBTD Clarifies as under:

“It is clarified that “the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVJI-B of the Act on the amount paid/payable without including such service tax component. “

What the Change Means

The following points/conditions should be noted given under the new circular 01/2014 dated 13.01.14 to get exemption on TDS on service Tax

1. The payment should be made to Resident.

2. Service Tax amount payable shall be indicated separately in term of Agreement/Contract between payer and payee.

If both the above condition are satisfied then no need to deduct TDS on service tax part.

The circular is effectively prospective.

Kindly peruse the Circular in light of the above changes.


Experts Views-only for info and not to be applied [Yet in Clarification mode]

The above circular shall apply not only on section 194J but on following section also.

  1. 194C(1) Contracts
  2. 194C(2) Sub-contracts/ Advertisements
  3. 194D Insurance Commission
  4. 194G Commission on sale of lottery tickets
  5. 194H Commission or Brokerage
  6. 194I Rent (Land & building) furniture & fittings) Rent (P & M , Equipment)
  7. 194 IA TDS on transfer of immovable property other than agriculture land (wef 01.06.13)
  8. 194J Professional/Technical charges/ Royalty & Non-compete fees
  9. 194J(1)(ba) Any remuneration or commission paid to director of the company (Effective from 1 July 2012)
  10. Payment made to Resident all other section covered under chapter XVII-B of the Income Tax Act, 1961

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  1. Darshan Singh says:

    I am a GPA holder of four Non-Residents and all having taxable rental income on which service tax is payable. Our tenant is bank who is deducting TDS on service tax components which is not covered under taxable income hence ur income will not match with 26AS. Please advice what we Should do.

    Darshan Singh

  2. SUNIL HUKKERI says:

    Whether this circular can be applied for existing contract or agreements i.e that which are in pipeline or only applicable for those contract or agreement which came into existence on or after this circular.

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