Tds on construction of a premises to be used for renting
This query is : Resolved
27 November 2013
An individual is doing business as a wholesaler and files his return under the "business" head.
If he makes payment from his saving bank a/c which is not a part of his business balance sheet to a construction co. for construction of a building that will be used for rental purposes and the income will be shown in the Head " House Property",
Will the TDS provisions be applicable?
Does the liability to deduct TDS arise?
Please reply
If he makes payment from his saving bank a/c which is not a part of his business balance sheet to a construction co. for construction of a building that will be used for rental purposes and the income will be shown in the Head " House Property",
Will the TDS provisions be applicable?
Does the liability to deduct TDS arise?
Please reply
27 November 2013
In my opinion
In the first case is he currently under TDS provisions
If no then no need of above.
If yes
Then if an asset is generating income then TDS liability will arise.
But few exceptions lets treat his construction as investment then you can plan for non deduction of TDS. Then in that case when construction is complete then just transfer the investment to Asset and Rent the property.
In the first case is he currently under TDS provisions
If no then no need of above.
If yes
Then if an asset is generating income then TDS liability will arise.
But few exceptions lets treat his construction as investment then you can plan for non deduction of TDS. Then in that case when construction is complete then just transfer the investment to Asset and Rent the property.
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27 November 2013
Yes, he is currently under TDS provisions,
sir, if income is shown in the head "House Property", then will TDS dis-allowance be there? since TDS provisions are applicable under section 44AB which deals with income under the Head "Business/Profession"?
sir, if income is shown in the head "House Property", then will TDS dis-allowance be there? since TDS provisions are applicable under section 44AB which deals with income under the Head "Business/Profession"?
27 November 2013
happy to hear complexity
what i understand once a person complies with TDS provisions under any head then he has to comply the same for all income. i.e only where the expense is relating to his actual income.
In your case currently the capital expenditure is not generating any income so there is no case of disallowance. But you are making an payment of income to the builder so the provisions may attract. Lets keep this open i will also go thru the act again and get back to you.
what i understand once a person complies with TDS provisions under any head then he has to comply the same for all income. i.e only where the expense is relating to his actual income.
In your case currently the capital expenditure is not generating any income so there is no case of disallowance. But you are making an payment of income to the builder so the provisions may attract. Lets keep this open i will also go thru the act again and get back to you.
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27 November 2013
Okay Sir...i will wait for your reply
27 July 2025
Great follow-up! Here's a detailed explanation to clarify your doubts:
---
### 1. **Is TDS deduction required on construction payments for a property used for renting?**
Yes, **TDS deduction under Section 194C** is applicable on payments made to contractors for construction work, **regardless of the purpose for which the building is constructed**—be it for business use or rental income (House Property).
* Section 194C applies to payments to contractors for carrying out any work (including building construction).
* The deductor (payer) must deduct TDS if the payment crosses prescribed thresholds.
* This applies to individuals as well, **irrespective of the bank account used** (personal or business).
---
### 2. **Does income shown under "House Property" affect TDS or its disallowance?**
* The fact that the income is reported under the head **"Income from House Property"** and **not under Business/Profession** **does NOT affect the applicability of TDS deduction**.
* **TDS provisions are independent of the head under which income is shown** in the Income Tax Return.
* TDS on construction payments is **mandated by law to be deducted at the time of payment**, regardless of the income head.
---
### 3. **What about Section 44AB (Audit requirement) and disallowance of expenses due to non-deduction of TDS?**
* Section 44AB deals with **audit of accounts for persons carrying on business or profession** when turnover exceeds prescribed limits.
* It **does not govern TDS applicability or disallowance**.
* If TDS is not deducted where applicable (such as on construction payments under Section 194C), then **Section 40(a)(ia)** can come into play.
**Section 40(a)(ia)** provides that **if TDS is not deducted or deposited on payments where it is mandatory, the expense shall be disallowed** to the extent of the amount on which TDS is not deducted or deposited.
* This disallowance is **irrespective of the income head**.
---
### 4. **Summary:**
| Question | Answer |
| -------------------------------------------------------- | ----------------------------------------------------------- |
| Is TDS deduction required on construction payments? | Yes, under Section 194C |
| Does income shown under House Property affect TDS? | No, TDS rules are independent of income head |
| Is disallowance of expense possible if TDS not deducted? | Yes, under Section 40(a)(ia) |
| Does Section 44AB affect this TDS liability? | No, it only applies to audit requirement, not TDS deduction |
---
### **Conclusion:**
* The individual must deduct TDS on construction payments as per Section 194C.
* Failure to do so can lead to disallowance of expense under Section 40(a)(ia).
* The fact that rental income is shown under House Property does not exempt from TDS liability.
* Section 44AB does not provide any exemption regarding TDS deduction.
---
If you want, I can help you draft the exact entries or notices related to TDS deduction and payment! Would that help?
---
### 1. **Is TDS deduction required on construction payments for a property used for renting?**
Yes, **TDS deduction under Section 194C** is applicable on payments made to contractors for construction work, **regardless of the purpose for which the building is constructed**—be it for business use or rental income (House Property).
* Section 194C applies to payments to contractors for carrying out any work (including building construction).
* The deductor (payer) must deduct TDS if the payment crosses prescribed thresholds.
* This applies to individuals as well, **irrespective of the bank account used** (personal or business).
---
### 2. **Does income shown under "House Property" affect TDS or its disallowance?**
* The fact that the income is reported under the head **"Income from House Property"** and **not under Business/Profession** **does NOT affect the applicability of TDS deduction**.
* **TDS provisions are independent of the head under which income is shown** in the Income Tax Return.
* TDS on construction payments is **mandated by law to be deducted at the time of payment**, regardless of the income head.
---
### 3. **What about Section 44AB (Audit requirement) and disallowance of expenses due to non-deduction of TDS?**
* Section 44AB deals with **audit of accounts for persons carrying on business or profession** when turnover exceeds prescribed limits.
* It **does not govern TDS applicability or disallowance**.
* If TDS is not deducted where applicable (such as on construction payments under Section 194C), then **Section 40(a)(ia)** can come into play.
**Section 40(a)(ia)** provides that **if TDS is not deducted or deposited on payments where it is mandatory, the expense shall be disallowed** to the extent of the amount on which TDS is not deducted or deposited.
* This disallowance is **irrespective of the income head**.
---
### 4. **Summary:**
| Question | Answer |
| -------------------------------------------------------- | ----------------------------------------------------------- |
| Is TDS deduction required on construction payments? | Yes, under Section 194C |
| Does income shown under House Property affect TDS? | No, TDS rules are independent of income head |
| Is disallowance of expense possible if TDS not deducted? | Yes, under Section 40(a)(ia) |
| Does Section 44AB affect this TDS liability? | No, it only applies to audit requirement, not TDS deduction |
---
### **Conclusion:**
* The individual must deduct TDS on construction payments as per Section 194C.
* Failure to do so can lead to disallowance of expense under Section 40(a)(ia).
* The fact that rental income is shown under House Property does not exempt from TDS liability.
* Section 44AB does not provide any exemption regarding TDS deduction.
---
If you want, I can help you draft the exact entries or notices related to TDS deduction and payment! Would that help?
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