“TDS on Rent“ is deductible under section 194-I of the Income-tax Act,1961. Section 194-I was inserted in the law by Finance Act, 1994. In this article, we will provide you the detailed information as laid down under section 194-I of the Income-tax Act, 1961.
Meaning of the Term ‘Rent’
For understanding the provisions of Section 194-I i.e. TDS on Rent, first of all, we need to have understanding of the term ‘Rent’ upon which TDS is required to be deducted. The meaning of the term ‘Rent’ has been explained under explanation (i) to Sec. 194-I.
As per Explanation (i) to section 194-I Rent means any payment made for any tenancy/lease / sub-lease or any other agreement or arrangement for using any of the following –
- Land; or
- A building which includes factory building; or
- Land appurtenant to a building which also includes factory building; or
- Plant; or
- Machinery; or
- Furniture; or
- Equipment; or
- Furniture; or
Important Note:- It does not make any difference that the payee owns or does not owns any of the above-mentioned assets for which he is in receipt of rent.
Persons Required to Deduct TDS on Rent
Under section 194-I it is necessary for any person who is making payment of ‘Rent’ to a person who is Resident of India.
|Persons covered under section 194-I||Persons Not covered under section 194-I|
|Payer||Any person who is paying Rent.||–|
|If Payer/ tenant is individual/HUF||Individual/Huf whose turnover/sales/Gross receipts exceeds limits prescribed under section 44AB (a) or section 44AB (b)||Any other individual / HUF|
|Payment||Rent must be paid to a Resident person of India||Rent paid or payable to a Non Resident person is not covered under this section ( the same is covered under section 195)|
When to Deduct TDS?
If the person paying the ‘Rent’ is liable to deduct TDS under section 194-I then, he should deduct Tds from rent earlier of the following dates.
- At the time of crediting payee’s account with rent; or
- At the time of making payment of Rent through modes like Cash/cheque / draft or any other mode of payment.
Applicable Rates of TDS on rent under section 194-I
|Particulars||Rate of TDS|
|Rent in respect of Plant / machinery / equipment||2%|
|Renting in respect of land/building (includes factory building) or land appurtenant to a building (includes factory building) or Rent for use of furniture or fittings||10%|
Important note:- It should be important to note that if the payee of the ‘Rent’ does not furnish his PAN number then the payer/tenant should deduct TDS at maximum marginal rate i.e @20%.
Threshold Limit under Section 194-I
As Section 194-I of the Income Tax Act, 1961 there is no requirement to deduct TDS if the amount credited or paid does not exceeds Rs. 2,40,000/-
It should be noted that earlier the threshold limit was Rs. 1,80,000/- but from the Financial year 2019-20 the same was increased to Rs. 2,40,000/-
Circumstances where TDS not deductible u/s 194-I
1. Where the amount paid / payable in aggregate during the FY doesn’t exceed the threshold exemption limit i.e. Rs. 2,40,000.
2. The payer/tenant belongs to the category of an individual or Hindu undivided family who is not liable to tax audit under section 44 (AB).
3. Rent is paid/payable to a Govt. agency.
4. Sharing Rent proceeds between a film distributor and an Exhibitor.
The rent proceeds shared by the film distributor and the Exhibitor will not attract TDS under this Section 194I because the nature of the share of film exhibitor is on account of composite service and therefore not a rent.
Some clarifications on Applicability–
1. TDS on security deposit –
Security Deposit is collected by the landlord at the time of letting out of the property. Tax on such a security deposit is not to be deducted only if the amount of security deposit is refunded back to the tenant at the time of vacating the property.
However, TDS is required to be deducted on such a security deposit if it is adjusted against the rent. TDS is to be deducted under this section i.e. 194-I.
2. TDS Service Charges –
TDS is required to be deducted on the service charges payable to business centers because service charges are covered within the preview of the term ‘Rent’.
3.furniture and building separately let out –
There may be a situation in which the building and the furniture, fixtures are owned by different persons and are let out. In that case, Tds should be deducted only out of payments made in respect of rent of building only, under section 194-I of the Income Tax Act, 1961.
4 Rent paid to hotel for conducting seminar including meal
In a case where the hotel is rented for conducting seminars and including serving of the meal, then, charges of the hotel also includes charges for catering of meal, and hence TDS will not be deductible on such payment under section 194-I. However, such payment would be covered under section 194-C of the Income Tax Act, 1961.