There has been confusion with regard to inclusion of Service Tax component in respect of Payments which are also subject to Tax Deduction at Source (TDS). Earlier the CBDT had issued a Circular No 4/2008 , wherein in respect of Rent Payments, it was clearly mentioned that the TDS Shall be deducted only on the Rent Portion of the Payment only and Service Tax Shall be excluded from TDS Payments. But in respect of other payments, it was not clear whether the Service Tax component has to be included for TDS Deduction or not.
The CBDT has vide its Circular No 1/2014 dtd 13th January 2014 has clarified this position and as per this circular, it has been clarified that wherever in terms of the agreement/contract between the payer and the payee, the service tax component in indicated seperately, TDS shall be deducted on the amount paid/payable without including the service tax component.
The relevant circular is reproduced below :-