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Tax* Deducted At Source(TDS) on rent and its provisions in the Income Tax Act, 1961, is important for people having a rental agreement. TDS rent Section 194-I details the provisions concerning different sources of rental income. Here is a detail to help you understand these provisions.
What Is Section 194I?
Section 194-I states that a person(not being an individual or HUF) responsible for paying rent income to a resident is liable to deduct tax at the source. The threshold limit for tax deduction is ₹2,40,000 from the Financial Year 2020-21. The meaning of rent and the types of rental payment is detailed in Section 194-I.
How is 'Rent' Defined in Section 194-I?
Rent refers to any payment made related to tenancy, lease, sub-lease, or an agreement for the use of:
- Land
- A building that includes factory building
- Land appurtenant to a building that includes factory building
- Machinery
- Plant
- Equipment
- Furniture
- Fittings
TDS is also applicable to the advance payments collected by the landlords that are not refundable.
What Types of Rental Payment is Included in Section 194-I?
Here are the different payments on which TDS on rent is charged under Section 194-I.
- Rent from a factory building - When you receive a rental income for letting out a factory building, the income is either a business income or referred to as income from a property and is subject to TDS for the rent.
- Rent that includes service charge - As the business centre owner, you will include the service charge in the rent, which is also subject to TDS.
- TDS concerning building and furniture rent let out by two different persons - If two different persons let out a building and the furniture in there, the payee must deduct the tax only on the rent of the building.
- TDS on rent that is not payable monthly - The TDS on rent under Section 194-I is not just for monthly rent payments. The TDS is based on the regular intervals of rent payment, whether quarterly or annually.
- TDS on cold storage facility - Cold storage is considered a plant. Therefore, in the case of storing milk, vegetables, fruits, etc., the TDS is based on the rent paid for the plant and not the building.
- TDS on rent of property paid by an association - If your property or hall is rented out for an association, the TDS will be applicable if the rent exceeds ₹2,40,000 for the financial year.
- Rent payments on hotels with meals - Hotels used for conducting seminars charge for the meals they provide only. Section 194-I does not include such charges for the TDS consideration. It is detailed as a separate provision in Section 194-C.
Who Should Deduct TDS on Rent?
Every taxpayer should deduct the TDS on rental payments if it qualifies for the consideration under Section 194-I. It differs based on the taxpayer.
- Any person who is not an individual or HUF responsible for paying rent income to a resident or a non-resident is liable to TDS, and the exemption limit is ₹2,40,000.
- Individual of firm that is covered under tax audit under section 44.
- TDS on rent paid by individuals and HUFs not covered under the tax audit paying rent to a resident more than ₹50,000 per month is 5%.
Rate For TDS On Rent
Section |
Nature Of Payment |
Rate of applicable TDS for resident Indians and Domestic Companies FY 2021-22 |
Section 194-I(a) |
Rent for plant and machinery |
2% |
Section 194-I(b) |
Rent for land, building, furniture or fitting |
10% |
The rate is 20% if there is no PAN or invalid PAN.
When is TDS On Rent Not Deducted?
TDS on rent is not deductible in the following cases:
- Rent payable does not exceed ₹2,40,000 for the financial year.
- Rent is due for an individual or HUF not having a business eligible for auditing under the Income Tax law.
- Sharing of film exhibition between a film exhibitor and a film distributor. As the distributor does not take the cinema building on a tenancy or similar agreement, the payment is not rent.
- Rent is payable to government or statutory authorities.
What is the Due Date for Depositing the TDS Rent?
The due date to deposit the TDS can be detailed as follows:
- When the payment is made by or for the government, it has to be done on the same day. Challan form is not required in this case.
- It is on or before 7 days from the month for all cases. The month here is the end of the month when the deduction is made. The tax amount should enclose the Income Tax challan. There are two different scenarios here:
- When the amount is credited or paid in March, the deadline is on or before April 30.
- It is on or before 7 days from the end of the month for all other cases.
What are the Consequences Of Non - Deduction of TDS?
TDS on rent is an important consideration for all the related taxpayers.
- If you have not complied with the tax provision, you will be liable to pay 1% interest per month from when the tax was applicable for deduction until it is deducted.
- If you have deducted the tax but not deposited it to the government, you have to pay 1.5% per month when the tax is deducted until when it is deposited.
How Does TDS Affect The Owner and the Tenant?
For the owner, the TDS is reflected in the form 26AS which can be claimed in the ITR. And, the tax deducted by the tenant will reduce the overall tax liability.
For the tenant, the deduction is not added to the taxable income. Therefore, it will not affect the usual tax liability.
If you want to benefit from the tax deduction provisions of the Income Tax Act, 1961, you should choose wise investment options such as life cover insurance. It is because the premium you pay for a life insurance plan will qualify for a tax* deduction under Section 80C of the Income Tax Act, 1961.
Conclusion
Section 194-I details the tax provisions for TDS on rent for persons, not individuals or HUFs responsible for paying rent. It explains the context of rent and its applicability for TDS. It is important to know the TDS rate, the due date for depositing the amount, and the consequences for not following the tax provisions. If you are liable for the TDS on rent, plan to make the necessary calculations and deposit it without fail!
L&C/Advt/2022/Nov/2981
