Rent Income

[Dharmender Batra]

The agreement was earlier that the lessee shall pay rent plus service tax. Service tax has been deposited by landlord. Now the lessee says that he will pay only rent and the service tax shall be borne by the landlord. For the purpose of rent income, the rent income will be rent received by landlord minus the service tax deposited by him or the gross rent received.

[Surender Gupta]

As I understand, the issue is more related to TDS under section 194I of the Income Tax read with CIRCULAR NO 4/2008, Dated: April 28, 2008. For the purpose, the tenant is required to deduct TDS on the whole amount paid to landlord if he is making payment without service tax or service tax component is known to him. On the other side, where the rent is inclusive of service tax as per the agreement, it is advisable that landlord should raise a bill of rent after calculating rent on reverse charge method and showing service tax separately to enable the tenant to deduct TDS  on total rent minus service tax. As long as the issue is related to payment of serivce tax, service tax is payable as - gross amount multiply by 10.3 divided by 110.3 method

AI Summary

Tax Deduction at Source obligations require tenants to deduct TDS on rent unless service tax is separately shown. The tenant must generally deduct TDS under section 194I on the amount paid to the landlord; if service tax is not shown separately or is known, TDS is to be deducted on the full payment. To enable correct TDS treatment, the landlord should issue a rent bill segregating rent and service tax, applying reverse charge where applicable, allowing the tenant to compute TDS on rent net of the service tax component. Service tax allocation can be computed by gross multiplied by 10.3 divided by 110.3.