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TDS on Rent Section 194I | Key Guidelines & Compliance

Written by Anchal Kumari Dt. March 12th, 2022

The Finance Act, 1994 inserted the Sec. 194-I, regarding deduction of tax from payment of rent. The Government felt that an item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way of rent.

Sec 194I TDS on Rent states that any person, whether an individual or HUF, who receives rent as income is liable for a tax deduction at source when the income credited is more than Rs. 1,80,000 in the financial year. Later on, the limit is increased from Rs.1,80,000 to Rs.2,40,000 (w.r.f. 01/04/2019).

The term ‘Rent’ means any payment, by whatever name called, under any lease, sub-lease any other agreement for the use of either separately or together any:

  • Land
  • Building (including factory building)
  • Machinery
  • Plant
  • Equipment
  • Furniture
  • Fittings

Persons who are responsible to deduct tax at source on rent to a resident person

  • Any person, other than individual or HUF
  • The Individual / HUF whose sales, gross receipts or turnover exceeds the prescribed limit specified under section 44AB.

Terms and Conditions to Deduct TDS on Rent

  • For TDS deduction PAN card number of the landlord or the person receiving rent, is required to be given to the payee. If it is not provided, TDS on rent is deducted at 20%.
  • 2% TDS will be deducted for the use of any machinery or plant or equipment.
  • 10% TDS will be deducted for the use of any land or building or furniture or fittings, if the payee is an individual or HUF.
  • There is no surcharge levied on TDS on rent except where a foreign company is involved and payment is above Rs.1crore.
  • TDS on rent does not surcharge any secondary and higher education cess.
  • If the tenant pays ground rent, municipal taxes, etc.., there is no TDS charged on that amount.
  • No TDS will be charged on security deposited to the landlord, if the security deposit is refundable at the time when tenant vacate the property.

The following are the payments covered under section 194I for TDS.

  • Rent from factory building: In the case where a factory building is let out, the rent received generally represents income from business in the hands of the lessor or the owner of the factory building. Therefore, it will not cover u/s194I.
  • Rent from furniture or building by two different people: TDS is only deducted from the building rent when the building and furniture are rented by different people.
  • Rent from a cold storage facility: Cold storage facilities that store ice cream, vegetables, or milk are considered plants and are not subject to building rent.
  • Renting a Hotel for Seminars with Meals:-When a hotel does not charge for the use of its premises but only for catering or meals, the provisions of Section 194I do not apply. Sec. 194C, on the other hand, would apply to the catering portion.
  • Tax deduction as per rent period: -194 It does not necessitate that the tax deduction be made on a monthly basis. As a result, if the rent is credited on a quarterly basis, the deduction at the source must also be made on a quarterly basis. Where rent is paid on an annual basis, a deduction must be made on the basis of the actual payment or credit once a year.
  • Hall rented by an association: If an association rents a hall, tax is deducted if the rent charged for it is more than the prescribed limit.

Circumstances under which TDS 194I is not deductible

  • Paying a Government Agency: Under Section 194-I, a person making a payment to the government is not obligated to deduct tax at source. Payments to statutory bodies and municipal governments are not tax deductible since they are not taxable.
  • When proceeds are shared by a film exhibitor and a distributor owning a cinema theatre, in the event of a contract between a film exhibitor and a film distributor, the exhibitor’s share is based on composite services. The distributor does not take a cinema building on lease, sublease, tenancy, or any other similar deal. The payment made is not rental in nature.
  • Amount payable/paid not exceeding Rs.2,40,000 during the financial year: From FY 2019-20 onwards, no tax is required to be deducted if the amount of rent due or paid does not exceed Rs. 2,40,000 (earlier it was Rs. 1,80,000).
  • Where the tenant is an individual or Hindu Undivided Family, a deduction is not required under Sec. 194I when the rent is due or paid by an individual or HUF not carrying on a business which is audited under income tax law.

Time Limit for Depositing TDS

  • When payment is made by or on behalf of the government, the same day on which payment is made (without using any challan form)
  • When payment is made in any other case than the government, on or before the 7th day after the end of the month in which the deduction is made.
  • If the amount is credited or paid in March, it must be submitted by April 30.
  • In any other case, it must be submitted on or before 7 days from the end of the month in which the deduction is made.

Penalties for non-deduction or non-payment of TDS

  • A taxpayer who fails to deduct TDS will be liable to pay interest at 1% per month from the date when tax is deductible to the date when tax is deducted.
  • A taxpayer who has deducted tax but fails to deposit it on the same day is liable to pay interest at 1.5% per month from the date when tax is deducted to the date of deposit of the TDS.

Written by
Anchal Kumari
Articled Clerk

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