TDS on Rent u/s 194I, 194IB and 194IC

TDS (Tax Deducted at Source) on rent refers to the deduction of a certain percentage of tax by the tenant before making a rental payment to the landlord. The tenant deducts TDS and deposits it with the government. This ensures that the government receives tax revenue on rental income and prevents tax evasion.

Section 194I of the Income Tax Act

Meaning: TDS on Rent under Section 194I mandates non-individual and non-HUF payers to deduct tax at source when paying rent, with a threshold of Rs 2,40,000 for FY 2023-24. Individuals and HUFs under tax audit must also comply. Tax is deducted when rent income is credited or paid to the payee, whichever is earlier.

Rate of TDS: The TDS rate for rent of plant, equipment, and machinery is 2%, and for rent of land, building, furniture, or fittings, it is 10%.

Persons liable to deduct TDS u/s 194I: Under Section 194I, the person (other than an Individual or HUF) paying rent to a resident must deduct TDS. Individuals or HUFs subject to tax audit are also required to deduct TDS under this section.

Payments Covered u/s 194I: The payment covered u/s 194I are :

• Payments from letting out factory buildings, including service charges and charges for cold storage facilities.
• Non-individual or non-HUF entities must deduct TDS from rent payments to residents.
• If building and furniture are rented by different persons, TDS is applicable only on the building rent.
• TDS should be made based on the frequency of actual payment or credit, whether monthly, quarterly, or yearly.
• Associations must deduct TDS if hall rent exceeds the specified limit. For hotel payments, Sec. 194C applies to catering charges.

Section 194IB of the Income Tax Act

Meaning: According to Section 194IB, any individuals or HUFs not subject to tax audit (Section 44AB) are require to deduct TDS if they pay monthly rent exceeding Rs 50,000 to a resident. TDS should be deducted at the earlier of credit for the last month in the previous year or the last month of tenancy if it ends during the year, or at the time of payment. This ensures tax compliance on substantial rental payments.

Rate of TDS: Under Section 194IB, if the rent payment exceeds Rs 50,000 per month and the landlord's PAN is provided, the applicable TDS rate is 5%. If the PAN is not available, a TDS rate of 20% applies.

Persons liable to deduct TDS u/s 194I: Individuals or Hindu undivided families (not covered under section 194I) are responsible for paying rent exceeding ₹50,000 monthly. Any payment under lease, sub-lease, tenancy, or similar arrangement for land or building usage qualifies as "rent." TDS under section 194IB also applies to those covered under sections 44AD and 44ADA.

Meaning of Rent as per Section 194-IB

As per Section 194-IB, "rent" means any payment made by a payee under various arrangements for assets such as:

• Land
• Land, including a factory building
• Building, including a factory building
• Machinery
• Plant
• Furniture
• Fittings
• Equipment

Section 194IC of the Income Tax Act

Meaning: Section 194IC of the Income Tax Act in India pertains to the deduction of Tax Deducted at Source (TDS) on payment under a Joint Development Agreement (JDA). A Joint Development Agreement involves the owner of a property allowing another party to develop a real estate project on that property in exchange for a share in the project and/or a cash payment.

Rate of TDS: Under Section 194IC, if the landlord provides their PAN details, the deductor must withhold tax at a rate of 10%. However, if the landlord does not furnish PAN information, the TDS rate increases to 20%. Additionally, if the transaction involves the use of machinery and equipment, the TDS rate is 2%.

What is the mode of TDS payment on rent?

• Tenants are required to deduct and pay TDS to the government once per financial year. This deduction generally required to be submitted once I.e., the last month of the financial year or the last month of the tenancy, whichever is earlier.
• Tenants must use a challan-cum-statement called Form 26QC to make the TDS payment to the government.
• Once the TDS payment done, the tenant must provide Form 16C to the landlord as Form 16C serves as a TDS certificate and provides proof of the tax deposited.
• Tenants do not need to have a Tax Deduction Account Number (TAN) to make the TDS transaction.

Penalties and interest levied in case of non-deduction or delay in TDS payment

• Penalty interest of 1% per month on the amount of tax should be deducted for delay in deducting taxes
• Penalty interest of 1.5% per month on the amount of tax should be deposited to the government for delay in depositing tax
• If fail to file Form 26QC within 30 days may result in a late fee of Rs 200 per day.
• A penalty of Rs 100 per day may be levied if fails to issue Form 16C within time frame.