‘TDS on rental income to be computed minus service tax’

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Giving some reprieve to corporate houses working out of leased property, the finance ministry has said tax deducted at source (TDS) on rental income should be calculated on the amount of rent paid, without including the service tax charged on it.

Doubts had cropped up on whether TDS should be calculated on the gross rental, inclusive of service tax or on net rental, excluding the amount paid as service tax. The Central Board of Direct Taxes (CBDT) also got many representations in this regards, following which it has clarified the matter.

“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,” the CBDT has clarified. So TDS, under sections 194-I of the Income Tax Act, would be required to be made on the amount of rent paid without including the service tax, it further added. TDS is deducted on rentals which are over Rs 12,000 per month at the rate of 20% for companies and 10% for individuals.