Govt clears air on TDS on commercial rent
The government is considering allowing taxpayers to deduct tax at source (TDS) on rents after reducing the total outgo on service tax.
By Deepshikha Sikarwar, TNN |
NEW DELHI: Taxpayers, especially corporates in the retail sector who have to bear the burden of huge rentals for commercial space, could get some relief soon. The government is considering allowing taxpayers to deduct tax at source (TDS) on rents after reducing the total outgo on service tax.
North Block is examining a proposal in this regard after receiving references from field formations, and a clarification may be issued shortly, a government official said.
To put it simply, if a taxpayer pays Rs 100 as rent he is liable to pay service tax at the rate of 12%, taking the total outgo to Rs 112. There was a confusion as to whether TDS would be on Rs 100 or Rs 112. As the field formations were in dilemma, in some instances they had demanded deduction of tax on the final amount of Rs 112. The confusion had arisen after the government brought commercial rental service under tax net in the Budget for 2007-08.
Commercial enterprises have to deduct tax at the rate of 20% while individual taxpayers have to do so at a lower rate of 10%. TDS has to be deducted in all cases where rent is more than Rs 12,000 per month.
It may be noted that in the corporate sector, especially retail, rentals form a substantial part of the total running expenses. The move is expected to benefit them as it would lower their TDS liability.
Though, the taxpayer can get the amount deducted as TDS back in form of refund if he does not have tax liability, his funds get blocked for that period. TDS is a neat way of collecting tax on part of the government, but for businesses, it leads to problem of blockage of cash, much required for working capital expenses.
North Block is examining a proposal in this regard after receiving references from field formations, and a clarification may be issued shortly, a government official said.
To put it simply, if a taxpayer pays Rs 100 as rent he is liable to pay service tax at the rate of 12%, taking the total outgo to Rs 112. There was a confusion as to whether TDS would be on Rs 100 or Rs 112. As the field formations were in dilemma, in some instances they had demanded deduction of tax on the final amount of Rs 112. The confusion had arisen after the government brought commercial rental service under tax net in the Budget for 2007-08.
Commercial enterprises have to deduct tax at the rate of 20% while individual taxpayers have to do so at a lower rate of 10%. TDS has to be deducted in all cases where rent is more than Rs 12,000 per month.
It may be noted that in the corporate sector, especially retail, rentals form a substantial part of the total running expenses. The move is expected to benefit them as it would lower their TDS liability.
Though, the taxpayer can get the amount deducted as TDS back in form of refund if he does not have tax liability, his funds get blocked for that period. TDS is a neat way of collecting tax on part of the government, but for businesses, it leads to problem of blockage of cash, much required for working capital expenses.
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