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TDS provisions on rent under section 194I

Under the TDS concept, a person who is liable to make a specified payment to any other person shall deduct tax at source (TDS) and deposit the same into the account of the Government. The deductee from whose TDS has been deducted would be entitled to get the credit of the amount so deducted. . 

Applicability of TDS on rent

  • Any person other than an individual or HUF who is responsible for paying rent to a resident is required to deduct tax at the prescribed rate under section 194I.
  • The threshold limit for deduction of TDS on rent is Rs 2,40,000. This means no deduction needs to be made u/s 194I on rent payment if the total amount paid during the financial year does not exceed Rs 2,40,000.

What is the meaning of Rent?

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-

  • Land or
  • Building (including factory building) or
  • Land appurtenant to a building (including factory building) or
  • Machinery or
  • Plant or
  • Equipment or
  • Furniture or
  • Fittings

whether or not any or all of the above are owned by the payee

What is the rate of TDS on rent?

 

Nature of Payment

TDS Rate

Rent for use of plant, machinery, or equipment

2%

Rent for use of land, building, furniture, or fittings

10%

 

When is TDS to be deducted on rent payment?

TDS is to be deducted at the time of credit of rental income to the account of the payee or at the time of payment, whichever is earlier.

When is TDS to be deposited with the Government?

TDS deducted on rent is to be deposited within 07 days from the end of the month in which TDS is deducted. If the payment is made in the month of March, then the time limit to deposit TDS is on or before 30th April of the next financial year.

Particulars

Due Date

TDS deducted in the month of November 2021

7th December 2021

 

What happens if TDS is not deducted or deposited?

1. If the tenant is liable to deduct tax on rent payment and fails to deduct the same, he will be liable to pay interest @ 1% per month from the date when tax is deductible till the date when tax is deducted.

2. If the tenant deducts tax on rent payment but not deposited the same to the government, he will be liable to pay interest @ 1.5% per month from the date when tax is deducted to the date of deposit of the TDS.

CBDT clarifications on applicability of section 194-I on various payments

Cooling charges paid to cold storage owners

CBDT vide Circular No.1/2008 dated 10.1.2008 has clarified that the arrangement between the customers and cold storage owners are basically contractual in nature, the provision of section 194-C will be applicable to the amounts paid as cooling charges by the customers of the cold storage.

Thus, TDS u/s 194I shall not be deducted on payment of cooling charges.

GST component comprised in rent payment

CBDT has clarified that wherever the component of 'GST on services' comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source on the amount paid or payable without including such 'GST on services' component.

Lumpsum lease premium paid for acquisition of long term lease

CBIC vide Circular No 35/2016 dated 13-10-2016 has clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I. Therefore, such payments are not liable for TDS under section 194-I.

Important points for Tenant of the Property

  1. Collect and verify the Permanent Account Number (PAN) of the Landlord.
  2. If the landlord does not furnish his pan to the tenant then TDS needs to be deducted @ 20%.
  3. PAN of the Landlord, as well as Tenant, should be mandatorily furnished in the online Form for furnishing information regarding the rent.
  4. If the Landlord / Payee is a non-resident, TDS is to be deducted under section 195 of the Income-tax Act, 1961.
  5. Surcharge is not applicable except where rent is payable to a foreign company and the amount exceeds Rs. 1 crore.
  6. No Education Cess is to be additionally charged on TDS on rent. 
  7. Deduct TDS at the applicable rate and deposit the same on or before the due date.

Important points for the Landlord of the Property

  1. Provide PAN to the Tenant otherwise, TDS shall be deducted @ 20%.
  2. Verify deposit of taxes deducted by the Tenant in Form 26AS Annual Tax Statement.

Conclusion

 

Particulars

Section 194I

Nature of payment

Payment of Rent

Threshold limit

  • Rs 2,40,000 during FY
  • If the rent is paid by Individual and HUF, then provisions of section 194B will apply

Time of deduction

Time of credit of rental income to the A/c of payee or time of payment, whichever is earlier

Last date of deposit

  • If the payment is made in March - 30th April of next FY
  • In other cases - 7th of next month

Applicable Rate of TDS (% of the gross amount paid pr payable)

  • In case of machinery - 2
  • In case of Land or building or furniture - 10

Applicable to Non-Resident?

No

Low/No TDS certificate applicable?

Yes

Form of TDS Return

26Q


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CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.