CBDT has clarified vide Circular No. 1/2014 dated 13/1/2014 as follow : –“TDS under Chapter XVIIB of the Income tax Act, 1961 on service tax component comprised of payments made to residents” that whenever in terms and conditions of the agreement or contract made in between the payer and the payee, and the service tax amount payable to a resident is indicated separately, than TDS shall be deducted only on the amount paid/ payable without including such service tax component which is shown separately.
Hence after the amendment, the circular shall apply payment made to Resident all other sections covered under Chapter VII B of the Income Tax Act, 1961 such as 194(J), 194 (C), 194 (D), 194 (G), 194 (H), 194 (I).
Hon’bleRajasthan High Court, the Commissioner of Income Tax (TDS), Jaipur Vs. M/s. Rajasthan Urban Infrastructure also held the same view.