Section 194I of the Income Tax Act 1961 contains provisions with respect to TDS deduction on payment of rent. The provisions of TDS Section 194I explain the applicability, rate, time of deduction, and payment of TDS on rent. Here is a detailed explanation of provisions of Section 194I TDS on rent.
Any person other than an individual or HUF who is liable to pay an income in the form of rent -
To any resident shall deduct TDS under u/s 194I -
At the time of credit or payment
whichever is earlier
*Individuals/HUF whose gross receipts/ turnover from any business or profession exceeds Rs 1 crore in case of business and 50 lacs in case of the profession during the immediately preceding FY shall be liable to deduct TDS u/s 194I.
(i) "Rent" means any payment made for the use of (either separately or together) any -
• Land; or
• Building (including factory building); or
• Land appurtenant to a building (including factory building); or
• Machinery; or
• Plant; or
• Equipment; or
• Furniture; or
(ii) under any lease, sub-lease, tenancy or any other agreement or arrangement
(iii) irrespective of the fact that any or all of the above are owned by the payee.
TDS under section 194I shall be deducted at the following rates:
i) 2% in respect of rent paid for plant, machinery or equipment
ii) 10% in respect of other rental payments covered under the scope of TDS Section 194I (i.e., rent for use of any land or building, including factory building, or land appurtenant to a building, including factory building, or furniture or fixtures).
However, in case the PAN is not furnished, the payer / tenant would be liable to deduct TDS on Rent at maximum marginal rate i.e. 20%
TDS rates u/s 194I for 14/05/2020 to 31/03/2021
Due to the outbreak of COVID-19 TDS rates have been reduced by 25% wef 14/05/2020 to 31/03/2021. Applicable TDS rates u/s 194I are 7.50%, if rent pertains to the hiring of immovable property and 1.50%, if rent pertains to the hiring of plant and machinery.
Under Section 194I TDS on rent is deducted:
- at the time of credit of such income to the account of the payee or
- at the time of payment in cash/by the issue of cheque/draft or by any other mode
whichever is earlier.
Where any such income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to make such payment, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section will apply accordingly.
The exemption limit under TDS Section 194I is Rs 2,40,000. That is TDS shall not be deducted during the FY if the amount of such income or the aggregate of the amounts of such income credited or paid or likely to be credited or paid to the account of the payee does not exceed Rs 2,40,000.
Circular No.1/2008 clarified that provisions of 194-I are not applicable to payments made by customers on account of cooling charges to cold storage owners instead provisions of section 194-C shall apply.
Circular No.35/2016, dated 13-10- 2016
Accordingly, the CBDT has, vide this clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I. Therefore, such payments are not liable for TDS under section 194-I.
1. The aggregate amount paid / payable during the Financial Year doesn't exceed the threshold exemption limit i.e. doesn't exceed INR 2,40,000.
2. The payer / tenant is an individual or HUF who is not liable to tax audit as per section 44 (AB) clause (a) or (b).
3. Rent is paid / payable to a Government agency.
4. Sharing of proceeds between a Film Distributor and Exhibitor owing the cinema theatre -
The proceeds shared between the film distributor, and the owner of the cinema theatre (Exhibitor) will not attract TDS under Section 194-I since the share of film exhibitor is on account of composite service and the share / payment is not in the nature of rent.
1. Is TDS deducted on security deposit of rent?
The landlord generally collects security deposit at the time of letting out of the property. TDS is not to be deducted on security deposit of rent, if the deposit is refunded back by the landlord. However, if the security deposit is adjusted against rent, then, TDS is deductible on the same.
2. What happens if TDS is not deducted on rent?
If the payer / tenant is liable to deduct TDS on rent, however, the same has not been deducted, then, the payer / tenant would be liable to pay the penalty @ 1% per month from the date the tax was to be deducted till the date tax actually deducted.
3. Separate letting of furniture and building -
There can be a situation wherein, the building is let out by one person and the furniture, fixture etc. are let out by another person. In this case, TDS would be deductible under section 194-I of the Income Tax Act, 1961 only from the rent payable for letting out of the building.
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