CBDT clarified that while deducted tax at source (TDS), the amount of service tax shall not be included. In other words TDS shall be deducted on rent portion only after excluding the amount of service tax if included in the gross amount.

For an Example:

Basic Rent = Rs. 1,00,000/-

Amount of Service Tax @ 12.36% = 12360/-

Total Amount to be Paid = Rs. 1,12,260/-

Minus TDS @15% = 15000/-

(Note: - Rate of TDS may vary on case to case basis)

Net Amount to be paid = Rs. 97360/-

See:-  Circular No. 4/2008 dated 28-4-2008 - Income Tax

TDS on rent must exclude service tax, so withholding is computed only on the rent portion. Withholding on rent payments must be computed after excluding any separately stated service tax component; deductors should subtract service tax from the invoiced total and apply the applicable TDS rate to the remaining rent amount, per administrative guidance.