August 13, 2013
It has been a debate among TDS deductors whether TDS to be deducted on the amount including Service Tax or not.
The Income tax department has clarified the same in their Circular No.4/2008 dated 28/04/2008 which says that the TDS to be deducted only on the Rent paid excluding the Service Tax under Section 194-I. Though this circular has clarification only for the amount related to Rent, and there is no further clarification for other sections which are related to Tax Deducted at Source.
So, they have issued further notification F.No.275/73/2007-IT (B) dated 30/06/2008 in which they clarified that the Circular No.4/2008 dated 28/04/2008 is applicable only to Rent. It clarifies that the amount paid under section 194J will be subject to TDS including Service Tax.
As per the Section 194-I, only Income by way of rent subject to TDS and the Service Tax part is not income for the landlord so it is to be excluded when TDS is deducted. Whereas in the case of Section 194J, it says that any sum by way of fees for Professional services or Technical services, so TDS is to be deducted on the whole amount of fees including Service Tax.
So, TDS should be deducted on any sum paid and on Income. The deductor should understand the difference between ‘any sum’ and ‘income’, and deduct TDS accordingly. We assume that this is applicable to all the other sections come under Tax Deducted at Source and whenever the word ‘any sum’ included in any section, TDS should be deducted on the whole amount including Service Tax.