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GST or Service tax paid by the tenant doesn’t partake the nature of “income” & so TDS is not applicable on GST?
CBDT Circular No. 23/2017 has clarified about non applicability of TDS on GST components in case of payment u/s 194J. Similar views were expressed by Circular No. 4/2018 on payment of Rent which is liable for TDS U/s 194I.
However, the question remains whether it will be applicable for section 194Q?
Obviously, GST is nothing but a tax collected as an agent of the Government and without any components of income therein. Hopefully, CBDT may clarify that TDS is not applicable on the components of GST. Unless and until, the CBDT clarifies it, the issue would continue to be a matter of debate and litigation.
Let us read three circulars issued by CBDT issued earlier on similar issue.
CIRCULAR NO 4/2008 , Dated: April 28, 2008
Clarification on deduction of tax at source (TDS) on service tax component on rental income u/s. 194-I of the Income Tax Act.
Representations/ letters have been received in the Board seeking clarification as to whether TDS provisions u/s. 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 194I, tax is deductible at source on income by way rent paid to any resident. Further rent has been defined in 194I 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 sections 194-I of Income Tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. 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.
Deputy Secretary (ITB)