Rent is the amount paid for a building with a factory, a lease, a tenancy, a sublease, or other arrangement for properties such as land, machinery, plant, furniture, or fittings. Rental income has been taken into account under TDS provisions via Sections 194I, 194IB, 194IC and 195 of Income Tax Act, 1961.
- Section 194I – TDS on Rent
- Section 194IB – TDS on Payment of Rent by HUF/Certain Individuals
- Section 194IC – TDS on Payment Made Under Specified Agreement
- Section 195 – TDS on Rent paid to NRI
Rent from the renting or subletting of property is liable to Tax Deduction at Source (TDS). When rent payments reach a specific amount, TDS is applicable. Section 194-I of the Income Tax Act, 1961 states that when the annual rent payable or paid exceeds Rs.240000, TDS is applicable. Individuals and Hindu Undivided Families (HUFs) who are exempt from tax audits under Section 44AB of the Income Tax Act are subject to TDS on rent.
Table of Contents
Section 194I - TDS on Rent
Meaning of ‘Rent’ u/s 194I
Rent means any amount paid under lease or sub-lease or agreement or any tenancy for the use of:
- Plant
- Machinery
- Land
- Building (including factory building)
- Equipment
- Furniture
- Fittings
Person required to deduct TDS u/s 194I
Rent payments made by non-individuals or HUFs to other residents are subject to TDS deductions under Section 194I. However, under this section, TDS on rent must be deducted from the income of any individuals or Hindu undivided families who were covered by Section 44AB (a) and (b) during the financial year that immediately preceding the financial year in which such income was credited or paid.
Time Limit for TDS deduction u/s 194I
TDS on rent will be deducted at the time of:
- Credit of rent to the payee’s account or
- Actual payment (in cash or other modes)
Whichever is earlier.
Rate of TDS deduction u/s 194I
TDS on rent will be deducted at the rate of:
- 2% for the use of any machine, plant, or equipment.
- 10% for the use of any land or building (including factory building), furniture or fittings
No TDS deduction u/s 194I
- Where the rent paid (at once or total in a financial year) to a payee (receiver) does not exceed Rs.240000.
- Where the rent is paid to a business trust (such trust owns the asset), a real estate investment trust as referred u/s 10(23FCA).
Some Special Cases u/s 194I
- Warehousing charge paid is subject to TDS under this section.
- A security deposit paid to the owner of an asset is not liable to TDS u/s 194I if such amount is refundable in nature. However when that ‘deposit’ is adjusted against rent, it becomes liable to TDS under this section.
- Amount paid for renting a business center is liable to TDS under this section.
- Payments made for regular hotel accommodations (i.e., under an agreement) are subject to TDS under this section. However if such payment is made by an employee or individual (who represents the company) and is later reimbursed by the company, then TDS will be deducted.
Section 194IB - TDS on Payment of Rent by Certain Individual or HUF
As per section 194IB, it is mandatory for any person (individuals / HUF) who is not subject to audit u/s 44AB, to deduct TDS for rent paid to a resident exceeding Rs.50000 per month.
Person required to deduct TDS u/s 194IB
Any person (Individual/ HUF) who is not liable to audit u/s 44AB and pays rent to a resident is required to deduct TDS under this section.
Time Limit for TDS deduction u/s 194IB
TDS will be deducted at the time of:
- Credit of rent to the account of the payee (for the last month in the previous year or the last month of the tenancy if the property is vacated before or during the year) or
- Actual payment (in cash or other modes)
Whichever is earlier.
Rate of TDS deduction u/s 194IB
TDS will be deducted at the rate of:
- 5% under this section
- 20% if PAN of the recipient is not available
- 10% in case the receiver of rent is a specified person as per Section 206AB, however the TDS amount cannot exceed the rent paid for the last month.
No TDS deduction u/s 194IB
TDS is not required to be made where the rent does not exceed Rs.50000 per month (or part of it). In addition to above, there is no requirement of having TAN to deduct TDS under this section
Section 194 IC - TDS on Payment made Under Specified Agreement
This section has been introduced to bring rent under the scope of ‘Joint Development Agreements’. Let’s talk in-depth about this section:
Meaning of Joint Development Agreement
This is an agreement whereby the owner of a building, land, or both consents to let someone else develop a real estate project on it in exchange for a percentage or monetary payment.
Person required to deduct TDS u/s 194IC
Any person who pays to a resident some consideration (not in kind) under a Joint Development Agreement has to deduct TDS u/s 194IC. There is no exemption limit (threshold) under this section.
Time Limit for TDS deduction u/s 194IC
TDS will be deducted at the time of:
- Credit of rent to the payee’s account or
- Actual payment (in cash or other modes)
Whichever is earlier.
Rate of TDS deduction u/s 194IC
TDS will be deducted at the rate of:
- 10% under this section
- 20% if PAN of the recipient is not available
Time Limit for depositing TDS u/s 194I, IB & IC
After deduction of TDS under the above section, you also have to deposit the TDS amount to the government timely.
| Conditions | Time limit to deposit TDS |
| If amount is paid/credited in March | On or before 30th April |
| If amount is paid/credited in other months | Within 7 days from the end of the month is which TDS was deducted. |
A challan cum form 26QC must be filed for rent payments u/s 194-IB and this form needs is required to be filed within 30 days from the end of the month in which TDS was deducted.
Consequences for non-compliance with section 194I, 194IB, 194C
Interest for No/Late deduction
If TDS is not deducted or late deducted under these section, in such case interest will be levied at the rate of 1% per month or part of a month on TDS amount from the date when tax is deductible to the date when the tax is actually deducted.
Interest for No/Late Payment
If TDS is not deducted or late deducted under these section, in such case interest will be levied @1.50% per month or part of a month on TDS amount from the date when TDS was deducted to the date on when TDS was deposited.
Late Fee
Late fees will be payable u/s 234E if:
- The tax collector fails to provide the TCS statements by the due date specified; or
- The tax deductor fails to provide the TDS statements by the due date specified.
Late fee is Rs.200 per day and will be calculated till the failure continues by the deductor. However late fee amount cannot be more than TDS amount for which return needs to be filed.
Penalty
The Assessing officer can impose a penalty between Rs.10000 to Rs.100000 u/s Section 271H if:
- TDS/TCS return is not filed before the due date or
- The deductor provides incorrect information at the time of filing TDS or
- The collector provides inaccurate information while filing TCS
Section 195 - TDS on Rent Paid to NRI
The Assessing officer can impose a penalty between Rs.10000 to Rs.100000 u/s Section 271H if:
- TDS/TCS return is not filed before the due date or
- The deductor provides incorrect information at the time of filing TDS or
- The collector provides inaccurate information while filing TCS
Conclusion
In summary, TDS on rent, or Tax Deducted at Source for rental income, is a vital measure to ensure smooth tax collection and transparency. It simplifies taxation, curbs evasion, and supports the development of public services. By mandating tax deduction from rental payments, it encourages compliance, fostering a fair economic landscape.
Frequently Asked Questions (FAQ)
Raid paid by salaried person can be claimed as exemption u/s 10(13A) or as a deduction u/s 80GG.
Under section 270A, there is a penalty for underreporting or misreporting income. The penalty can be either 50% or 200% of the tax due on the unreported income.
GST is required to be paid only on rental income of commercial property, not residential property.
The hoarding contract is similar to an advertising, and since advertisements fall under contracts, section 194C’s rules would also apply. It should be made clear, though, that if someone rents out a space and then sublets it entirely or in part for the purpose of erecting a hoarding, they will be held accountable to TDS under section 194-I of the Act rather than section 194C.
Payments paid by persons, other individuals, and HUFs for the regular rental of hotel rooms are tax deductible u/s 194-I
2 thoughts on “TDS on Rent – Section 194I, IB, IC & 195 of Income Tax Act”