We have vacated the factory building before the expiry of the Term. The Landlord forfeited our Deposit money on account of non compliance of Term and Condition. As per agreement we can not vacate the factory before expiry of 5 year. How to we account the forfeited money? What is implication of TDS on this money?
According to Section 194I of the Income Tax Act, 1961, TDS is required to be deducted on any income by way of rent.
In the instant case, the amount forfeited is not in the nature of rent and hence TDS provisions are not applicable. The situation could have been different if the deposit was used to adjust the arrears of rent. But in your case, the lessor has forfeited the amount of Deposit as a penalty for non-compliance of the terms and conditions of the rent agreement and not covered by section 194I.
Regards,
Jitesh G.
Rahul Dang & Associates-Chartered Accountants
Pune
CA Inter
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