The complex issue of TDS has got
even more tedious now with the
Government issuing a clarification to
a trade body recently.
Background
On 28th April, 2008, the CBDT had
issued a circular (No. 4/2008) stating
that while deducting tax at source
from rent payments, the tenant need
not deduct tax from the service tax
element. Thus, for example, if the
monthly rent was Rs. 100,000 and if
service tax was added to it, the total
payment to be made by the tenant
would be Rs. 112,360. In the normal
course, the tenant would have deducted
tax at source under section
194I from the entire payment of Rs.
112,360. But as clarified in the
above mentioned circular, the tenant
can now exclude the service tax element
from the gross amount and
thereby, deduct tax only from Rs.
100,000.
The Issue
The same logic ought to have been
applied for payments covered under
other sections dealing with TDS.
However, since the Circular was
very clear about only section 194I,
many organizations had made representations
to the Government for
clarifying that in all cases, the service
tax element should be ignored
for TDS purposes.
Clarifications sought and CBDT's
response
However, on 30th June, 2008, the
CBDT has written to the Bombay
Chamber of Commerce & Industry in
response to a representation made by
it to the Government requesting that
the Circular issued in the context of
Section 194I be also made applicable
for TDS from payment of professional
fees u/s. 194J.
In the said letter dated 30th June, the
CBDT has distinguished the two sections
and has justified the stand that in
respect of professional fees, tax is required
to be deducted even from the
service tax element i.e. from the gross amount of payment.
A copy of the said reply by CBDT
(Ref.: F.No.275/73/2007- IT (B) dated
30th June 2008) is enclosed herewith
for your reference.
In view of the above referred clarification
by the CBDT, it is now clear that
while deducting tax at source under
any section other than 194I (rent), the
deductor has to deduct tax from the
gross amount of payment including
taxes, if any. Thus, any short deductions
made by you till date need to be
rectified by way of payment of the
same after making necessary adjustments
in order to avoid disallowance
u/s. 40(a)(ia). |