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No TDS on Service Tax component of purchased property

The Central Board of Direct Taxes [“CBDT”] had notified the new provision of Tax Deducted at Source [“TDS”] on immovable property. The amendment that has been effective from June 1, 2013 imposed that purchaser of an immovable property (any land or building other than agricultural land) costing Rs. 50 lakhs or more is required to pay a withholding tax at the rate of 1%. As there have been certain confusions doing the rounds at the time of paying the TDS, CBDT has examined the matter afresh and clarified that no TDS is to be paid on Service Tax, if shown separately.

To elaborate, pursuant to the new judgement if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services to a resident, no TDS is required to be made on the service tax component.

For example, if A buys a property costing Rs. 60 lakhs from B, then A will have to deduct tax at 1% and deposit it. However, if an amount of Rs. 2 lakhs is included separately in Rs. 60 lakhs as service tax, A will have to deduct tax at 1% only on Rs. 58 lakhs and not the entire purchasing amount.

The important point/condition that should be noted as per the extension to the amendment in order to get exemption on TDS on Service Tax is that the service tax amount payable shall be indicated separately in term of Agreement/Contract between payer and payee. We hope the information will assist you in your procedure to pay TDS on purchase of property above Rs. 50 lakhs.

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