It is debated issue, well your point is valid.But still we need to deduct TDS inclusive of service tax except for Rent bill ( refer CIRCULAR NO. 4/2008, DATED 28-4-2008: from CTBT states that "Service tax paid by the tenant doesn't partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax"
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