Query regarding tds on rent u/s 194i

TDS 311 views 6 replies

A B Kundu

Professional

1427 Points Joined August 2012

We have an query regarding the TDS on rent paid u/s 194I.

Presently we are operating from a business center since the beginning of May'16. The business center provides two types of invoice for a particular month -

1) Occupancy Charges of Room (which is fixed and payable in the previous month by 25th.

For e.g. the Occupancy Charges for the Month of January'17 to be paid by 25/12/2016, like this way).

2) Other Service Charges (which includes Parking Charges, Overtime charges if any, Cabin booking charges for meeting if any and this amount is variable and payable within the 10th of the next month.

For e.g. the Other Service Charges for the month of December'16 to be paid by 10/01/2017, like this way).

Now, till November'16 we were thinking that we would leave this office and transfer our operations to any other place, hence calculating the expected total rent payable to DBS House it was observed that it would not exceed the limit specified U/S 194I,i.e., Rs.1,80,000/-, so no deduction of tax was required.

But, now as per the circumstances, we have to remain here for at least upto March'2017. Hence, total rent paid or payable is likely to exceed Rs.1,80,000/- during the FY 2016-17.

In this situation our queries are -

a] Whether Occupancy Charges and Other Service Charges both are liable to deduct tax or only the Occupancy Charges?

b] Whether we should deduct tax from the next payments normally @ 10% or we have to deduct the tax at higher rate for the earlier months' payment also (for which we haven't deducted tax) from the next payments?

c] Is there any other particular procedures that we need to comply in this regard?

Replies (6)

Shubham Gupta

Business Consultants

2077 Points Joined February 2014

hello,

Occupancy Charges Should be chargable to TDs at 10% us 194i, taking into consideration limit of Rs 180000.

and variable part should chargeable to TDS us 194c

TDS us 194i should be deducted at whole amount paid, including the rent paid of 180000

For more info. reachout to us

info @ mytaxfiling.in

www.mytaxfiling.in

A B Kundu

Professional

1427 Points Joined August 2012

Hello Shubham,

Thank you for your reply. Can you state the logic for deducting tax u/s 194c?

And, for 194I, you mean we need to deduct tax on occupancy charges at higher rate from the next payment to cover the earlier deduction amount that should have been made?

Sanjay S

Chartered Accountant

1375 Points Joined August 2012

Hey Arkabrata,

Your situation seems to devolve around the following aspects of Income Tax Act,1961:

1. What are the amounts getting covered under section 194-I?

Section 194-I begins with the words "Any person, not being an Individual or HUF, who is responsible for paying to a resident, any INCOME by way of RENT, SHALL, at the time of credit of such income to the account of payee or at time of payment....."

Now the answer to the above question seems to narrow down onto what the term "RENT" means.

The Explanation to section 194-I defines "Rent means ANY PAYMENT, by WHATEVER NAME CALLED, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any 1)Land 2)Building..etc

Hence, This means any payment made by you to the business center towards use of Building, Land, parking space, plant &machinery, equipments, furnitures,etc shall get covered under the definition of RENT and TDS shall have to be made if total rent exceeds Rs.1.80 Lakhs. The fixed/variable nature of payment is not the criteria for deciding the applicability of section 194-I and 194C.

IF the above was not the case, then the business center could have easily issued an invoice showing LESS Occupancy charges and HIGH 'OTHER SERVICE CHARGES' to avoid deduction of tax at 10%.

2. Whether TDS u/s 194C is required to be made on payment to Business Center?

If you are making payment to business center, other than nature of RENT, then you may have to deduct tax as per section 194C, if the specified limits are exceeded.

3. You may also have to pay INTEREST @ 1% per month for delay in deduction of tax on payments to Business Center, eventhough your intentions were genuine & bonafide.

4. You may also need to file quarterly statments for TDS. (Section 200) and also issue TDS certificates under form 16/16A

A B Kundu

Professional

1427 Points Joined August 2012

Thank u so much Sanjay. But, one thing please clarify that means we need to deduct tax at higher rate from the next payment to be made to business center to cover up the previous nondeducted amount?

Sanjay S

Chartered Accountant

1375 Points Joined August 2012

Yes. You have to deduct higher amounts to make up for the short-deductions, to avoid disallowance u/s 40(a)(ia).

Eg. You are paying Rs.10,00,000 annually to the business center and you are supposed to deduct 10% ie., 100,000/-. Now if you have deducted only Rs. 60,000/-, then the 30% of amount on which tax has not been deducted shall be disallowed under above stated section, if you dont manage to deduct and remit within the due date of filing return of income. Hence in above example, Rs. 120,000 (ie., Rs.4 Lakhs * 30%) may be disallowed, if you dont make and remit TDS accordingly.

Disallowance u/s 40(a)(ia) will not be 30% of whole amount, but only such amount on which TDS has not been made (PROPORTIONATE BASIS).

I know all this is easier said than done; since convincing the business center to accept 10% TDS without spoiling relations, could prove to be a uphill task.

Hope this helps

Please do confirm with your auditor regarding the above.