The Income-tax Act mandates tax deduction at source (TDS) on rent payments through Sections 194-I and 194-IB. Section 194-I requires any person, excluding specific individuals or HUFs, to deduct TDS when the annual rent paid exceeds ₹2,40,000. For individuals or HUFs not covered under 194-I, Section 194-IB applies if the monthly rent exceeds ₹50,000. Under Section 194-I, rent includes payments for land, buildings, plant, machinery, or furniture. The TDS rate is 2% for machinery and 10% for land or buildings, with a higher rate applicable if the payee doesn’t furnish PAN or is a non-filer. Composite rent involving both buildings and machinery is taxed based on the primary rental purpose. Section 194-IB sets a 5% TDS rate, which cannot exceed the last month’s rent and does not require obtaining a TAN. TDS certificates must be issued within 15 days of filing the relevant forms. Both sections aim to ensure proper tax collection from rental income while detailing specific compliance requirements for different entities and situations.
FAQs on TDS on Rent
Q1. What are the provisions in the Income-tax Act that govern the deduction of tax at source on rent payments?
Ans: The tax deduction from rent payments is mandated by section 194-I and194IB of the Income-tax Act.
Section 194-I provides for the deduction of tax by any person (excluding specified individuals or HUFs) from the sum paid or payable as rent to a resident person which exceeds Rs. 2,40,000 during the financial year.
Section 194-IB provides for a tax deduction by specified Individuals or HUFs from the rent paid or payable, if the rent exceeds Rs. 50,000 per month or part of the month during the financial year.
Q2. What is the meaning of Rent for the purpose of section 194-I and section 194IB?
Ans: For the purpose of section 194-I, rent means any sum paid for the use of land, building, plant, machinery, equipment, furniture, or fittings under any lease, sub-lease, tenancy, or any other arrangement or agreement.
For Section 194-IB, Rent means any sum paid or payable for the use of any land or buildings or both under any lease, sub-lease, tenancy, or any other arrangement or agreement.
Q3. Who is liable to deduct tax at source (TDS) on rental payments under section 194-I?
Ans: Any person, other than an Individual or HUF, responsible for paying rent is required to deduct tax under section 194-I. An individual or HUF engaged in the business or profession having turnover or gross receipts exceeding Rs. 1 crore or Rs. 50 lakhs respectively.
Further, no deduction shall be made if the rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust.
Q4. When the tax is required to be deducted under section 194-I?
Ans: Tax is required to be deducted under section 194-I only if the rent is payable to a person who is a resident of India.
The tax shall be deducted at the time of credit of such rent or payment to the payee, whichever is earlier.
Q5. What is the threshold limit prescribed for the deduction of tax under section 194-I?
Ans: The tax shall be deducted by the payer if the amount paid or payable exceeds Rs. 2,40,000 during the financial year.
However, in the case of joint owners of a property, the threshold limit of Rs. 2,40,000 applies to each owner individually if their share in the property is definite and ascertainable.
Q6. What is the rate at which tax is required to be deducted under section 194-I?
Ans: The rate of deduction of tax at source (TDS) is 2% in case rent is paid for the use of plant, machinery, or equipment. However, if rent is paid for the use of land, building (including factory building), or land appurtenant thereto or furniture or fittings, the rate of tax would be 10%.
Further, these rates will not be enhanced by surcharge or health and education cess.
Q7. What will be the rate of TDS under section 194-I if the payee does not furnish PAN?
Ans: As per section 206AA, if the payee does not furnish PAN, tax shall be deducted at a rate higher of the following:
- The rate prescribed in the relevant provisions of the Act, or
- Rate or rates in force, or
- 20%
Q8. What will be the rate of TDS under section 194-I if payee is a non-filer of income-tax return?
Ans: As per section 206AB, if the payee has not furnished its return of income as per section 139(1) and the due date has expired, tax is required to be deducted at a rate higher of the following:
- Twice the rate prescribed in the relevant provisions of the Act, or
- Twice the rates in force, or
- 5%
Q10. What will be the rate of TDS under section 194-I if payee is a non-filer of income-tax return and also doesn’t furnish his PAN?
Ans: In this case, the tax shall be deducted at the rates specified under section 206AA or section 206AB, whichever is higher
Q11. How to deduct tax at source under section 194-I in case the building is let out along with machinery or other equipment?
Ans: The rental proceeds are considered as composite rent in case other assets such as plant, machinery, or equipment are also let out along with land or building. The tax deduction in such case would be as under:
(a) If there is a separate agreement for letting out of land or building and letting out of other assets:
The tax shall be deducted at the rate of 10% from the payment of rent of land or building and 2% from the rental payment of machinery, plant, or equipment.
(b) If there is no separate agreement for letting out of land or building and letting out of other assets:
The tax shall be deducted at the rate of 10% or 2% depending upon the substantial element of the rent agreement. If the renting of machinery, plant, or equipment is incidental to the renting of land or building, tax shall be deducted at the rate of 10%.
Q12. Whether payee can claim for nil/lower deduction of tax under section 194-I?
Ans: Yes, where estimated tax liability of an assessee justifies nil deduction of tax, he can file a declaration to the deductor for nil deduction of tax under Section 197A. Further, he also has the option to apply before the assessing officer for a nil or lower deduction certificate under Section 197.
Q13. What is the time limit to deposit the tax amount deducted under section 194-I?
Ans: Tax deducted at source under section 194-I is required to be deposited to the credit of the Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted. However, the tax deducted during the month of March shall be deposited by 30th April of the next financial year.
If deductor is a government office and tax is required to be deposited without submitting an Income-tax Challan, the Govt. Dept. shall deposit the tax on the same day on which tax has been deducted.
Q14. Is there any requirement to furnish TDS Statement for tax deducted under section 194-I?
Ans: The person responsible for deduction of tax at source under section 194-I is required to file a statement of tax deducted at source in Form 26Q on quarterly basis.
Q15. Whether the deductor is required to issue TDS Certificates to the deductee?
Ans: The deductor is required to issue a TDS certificate to the deductee in Form No. 16A within 15 days from the due date of furnishing of the TDS Statement.
Q16. Who is required to deduct tax on rent under section 194-IB?
Ans: Any individual or HUF, who is not covered under section 194-I, is required to deduct tax at source under section 194IB on rental payments.
Q17. When it is required to deduct tax at source under section 194IB?
Ans: The section provides the following timelines for deduction of tax at source:
(a) Where the property is let out for the whole year
Tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of the financial year, whichever happens, earlier.
(b) Where the property is vacated during the year
If property is vacated during the year, tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of tenancy, whichever happens earlier.
Q18. What is the threshold limit prescribed for rent for section 194IB?
Ans: The tax shall be deducted under this section if the rent for a month or part of the month exceeds Rs. 50,000 during the financial year.
Q19. What is the rate at which tax is required to be deducted under section 194IB?
Ans: The tax shall be required to be deducted under section 194IB at the rate of 5%. Further, the rate will not be enhanced by a surcharge or health and education cess.
However, tax deducted under this section shall not exceed the amount of rent paid for the last month of the financial year or the termination of tenancy, as the case may be.
Q20. What will be the rate of TDS under section 194-IB if the payee does not furnish PAN?
Ans: As per section 206AA, if the payee does not furnish PAN, tax shall be deducted at a rate higher of the following:
- The rate prescribed in the relevant provisions of the act, or
- The rate or rates in force, or
- 20%
However, deduction at a higher rate will prevail subject to the condition that the amount of TDS cannot exceed the amount of rent for the last month of the financial year or the termination of tenancy, as the case may be.
Q21. What will be the rate of TDS under section 194-IB if payee is a non-filer of income-tax return?
Ans: Section 206AB provides for deduction of tax at higher rate if the deductee has not furnished the return of income for a specified period. However, the provisions of Section 206AB are not applicable if tax is required to be deducted under section 194-IB.
Q22. Whether assessee is required to obtain Tax Deduction or Collection Number (TAN) in case tax is to be deducted under section 194-IB?
Ans: here is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN.
Q23. What is the time limit to deposit the tax amount deducted under section 194-IB?
Ans: Where tax is deducted under section 194-IB, it is required to be deposited through a challan-cum-statement in Form No. 26QC within 30 days from the last day of the month in which such tax is deducted. No further statement or form is required to be furnished. In case more than one seller, Form 26AS shall be fill up more than according to no. of seller. TDS cerficate shaal be issued to all seller
Q24. Whether the deductor is required to issue TDS certificates to the deductee under section 194-IB?
Ans: A certificate in Form No. 16C shall be issued by the deductor where tax is deducted under section 194-IB. The form shall be issued within 15 days from the due date of furnishing challan-cum-statement in Form No. 26QC.
