QUESTION AND ANSWERS ON SECTION 194I OF INCOME TAX ACT,1961
Q.1. who is liable to deduct TDS on Rent?
A.1. Any person, other than an individual or a HUF, is responsible for paying to resident in India, any income by way of the rent, amounting in aggregate to more than Rs. 180000 in a financial year. However w.e.f. 01/06/2002, individuals and HUF who were covered under section 44AB (a) and (b) in the preceding previous year, are also required to deduct tax at source.
Q.2. What is the point of deduction of TDS u/s 194I?
A.2. Tax should be deducted either at the time of actual payment of rent or at the time of its credit to the account of the payee whichever is earlier.
Q.3. What is the meaning of Rent?
A.3. Clause (c.)of Explanation to section 194I specifies the meaning of “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, –
(a) Land; or
(b) Building (including factory building); or
(c.) land appurtenant to a building (including factory building); or
(d) Machinery; or
(e) Plant; or
(f) Equipment; or
(g) Furniture; or
Whether or not any or all of the above are owned by the payee.
Q.4. At what rate tax to be deducted u/s 194I?
A.4. The rates of TDS in case of rent shall be as under:
|Nature of payment – Rent (194I)|
|(a)||Rent of Plant Machinery or equipment||2%|
|(b)||Rent of Land, Building or furniture to an individual and Hindu undivided family.||10%|
|(c)||Rent of land, Building or furniture to a person other than an individual or Hindu Undivided Family.||10%|
Q.5. Under what circumstances there is no need to deduct TDS u/s 194I?
A.5. There is no need to deduct TDS u/s 194I under below mentioned circumstances:
(i) Where aggregate amount of rent does not exceed Rs. 180000/-
(ii) In case, where rent paid to Government and Certain entities. (iii) Entities whose income is unconditionally exempt u/s 10. (Refer circular no. 4/2002, dated 10/07/2002 also refer circular No. 12/2002, dated 22/11/2002, circular no. 735, dated 30.01.1996].
(iv) In case, where payee applied in Form 13 to AO for non deduction, being his taxable income including rent below taxable limit, and has obtained certificate thereof.
Q.6. Whether a contract for putting up a hoarding would be covered under section 194C or 194-I of the Act?
A.6. The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub lets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 1 94C of the Act. Circular: No. 715, dated 8-8-1995. See also ITO v Roshan Publicity Pvt. Ltd. (2005) 4 SOT 105 (Mum).
Q.7. Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
A.7. Payments made by persons, other individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I. Circular: No. 715, dated 8-8-1995.
Q.8. Whether the rent paid should be enhanced for notional income in respect of deposit given to the landlord?
A.8. The tax is to be deducted from actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS. Circular: No. 715, dated 8-8-1995.
Q.9. Whether payments made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I?
A.9. The tax is to be deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I. Circular: No. 715, dated 8-8-1995.
Q.10. Whether in a case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted?
Q.11. Whether tax is required to be deducted at source where a nonrefundable deposit has been made by the tenant?
A.11. In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 1 94A of the Income-tax Act. Circular: No. 718, dated 22-8-1995
Q.12. Whether the tax is to be deducted at source from warehousing charges?
A.12.The term ‘rent’ as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be subject to deduction of tax under section 194-I. Circular: No. 718, dated 22-8- 1995
Q.13. On what amount the tax is to be deducted at source if the rentals include municipal tax, ground rent, etc.?
A.13.The basis of tax deduction at source under section 194-I is “income by way of rent”. Rent has been defined, in the Explanation (i) of section 194-I, to mean any payment under any lease, tenancy, agreement, etc., for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the tenant, no tax will be deducted on such sum. Circular: No. 718, dated 22-8-1 995
Q.14. Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?
A.14. Yes, the definition of the term “any land” or “any building” would include a part or a portion of such land or building. Circular: No. 718, dated 22-8-1 995
Q.15. Where accommodation in hotel rooms taken on regular basis whether tax is deductible u/s 194C or 194I?
A.15. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular bases. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement. However, where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements. Please refer Circular: No. 5/2002, dated 30-7-2002.
Q.16.How he can take credit of TDS deducted on advance rent?
A.16. Where advance rent is spread over more than one financial year and tax is deducted thereon, credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years. However where rent agreement gets terminated/cancelled resulting into refund of balance amount of advance rent to the tenant. Or the rented property is transferred, credit for the entire balance of tax deducted at source, which has not been given credit so far, shall be allowed in the assessment year relevant to the financial year during which the rent agreement gets terminated/cancelled or rented property is transferred and balance of advance rent is refunded to the transferee or the tenant, as the case may be. Please refer Circular : No. 5/2001, dated 2-3-2001.
Q.17.Whether provisions of S. 194I shall apply in a situation where payment is made for hotel accommodation by an employee or an individual representing a company?
A.17. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure. Circular: No. 5/2002, dated 30-7- 2002.
Q.18. Whether provisions of S. 194 I shall apply to proceeds of film exhibition?
A.18. Provisions of section 194-I are not attracted to proceeds of film exhibition, since :
(i) The exhibitor does not let out the cinema hall to the distributor;
(ii) Generally, the share of the exhibitor is on account of composite services; and
(iii) The distributor does not take cinema building on lease or sublease or tenancy or under any agreement of similar nature.
Please refer – Circular : No. 736, dated 13-2-1996.
Q.19. Whether TDS u/s 194 I deductible on gross amount inclusive of service tax?
A.19. Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax. Please refer CIRCULAR NO. 4/2008, DATED 28-4-2008
Q.20. Whether holding company is liable to deduct TDS on rent in respect of premises shared with its subsidiary?
A.20. Where holding company of assessee took a premise on rent and allowed assessee to use a part of it, and there was no relationship of lessor and lessee between them, assessee had no TDS obligation under section 194- I while reimbursing a part of rent to holding company. Please refer ACIT v. Result Services (P.) Ltd.  23 taxmann.com 93 (Delhi)
Q.21. Whether TDS u/s 194 I on payments in respect of entitlement rights of assured supply of railway rakes?
A.21. Seconding entitlement rights of assured supply of railway rakes and receiving charges for same is not rent as defined in section 194-I and, therefore, there would be no TDS obligation. Bonai Industrial Co. Ltd. v. Dy.CIT,  24 taxmann.com 158 (Cuttack – Trib.)
Q.22. Where there are several co – owners whether threshold limit of Rs. 180000/- shall be taken in to consideration in respect of each co-owner separately?
A.22. Where property in question leased out to a bank was owned by various co-owners and each owner was having a definite and ascertainable share in property, threshold limit for purpose of deduction of tax at source under section 194-I would apply to each of co-owners separately. CIT v. Senior Manager, SBI* 20 taxmann.com 40 (All.) see also CIT v. Manager, State Bank of India 226 CTR 310 (RAJ.), Amalendu Sahoo V ITO (2003) 264 ITR 16 (Cal), Orient Bank of Commerce V TDS / TRO (2006) 99 TTJ 1235 (Chd).
Q.23. Whether the tenant / assessee can be held as assessee in default, where the landlord duly paid the short deduction of TDS along with interest?
A.23. Once landlord paid amount of short deduction of TDS with interest on amount of rent, tenant/assessee could not be construed as an assesseein-default. CIT v. Sony India (P.) Ltd.*  17 taxmann.com 126 (Kar.)
Q.24. Whether TDS on Landing and parking charges is deductible u/s 194C or 194I?
A.24. Landing and parking charges paid by assessee-airlines to Airport Authority of India were ‘rent’ within meaning of provisions of section 194-I as those were payments made for use of land of airport. CIT v. Japan Airlines Co. Ltd.  325 ITR 298 (Delhi) see also CIT v Asiana Airlines (2008) 175 Taxman 177 (Del, United Airlines V CIT (2006) 287 ITR 281 (Del), however Chennai high court has given an adverse opinion in Singapore Airlines Ltd. V ITO (2006) 7 SOT 84 (Chennai).
Q.25. Whether provisions of S. 194I shall apply to non refundable security deposit?
A.25. Amount paid as security deposit under terms of lease agreement which was not refundable at the time of termination of lease. It could be said that said amount was in fact advance rent and as such, assessee was required to deduct tax at source from payment of such advance rent under section 194-I. Please refer CIT* v. Reebok India Co.  291 ITR 455 (Delhi)
Q.26. Where only land and warehouse are used and no other ser-vices are provided – Whether tax deductible u/s 194C or 194I?
A.26. Where only land and warehouse are used and no other ser-vices are provided, payment made is rent subject to deduction of tax at source under section 194-I of IT Act. Hindustan Coca-Cola Bev. (P.) Ltd. v. CIT  141 Taxman 60 (Delhi)
Q.27. Whether TDS u/s 194I is deductible on upfront fee?
A.27. Where the lessee paid an upfront fee against license fee for a lease covering a period of 30 years, tax is deductible at source even on such upfront fee as rent under section 194I. Please refer TRO v Bharat Hotels Ltd. (2009) 318 ITR (AT) 244(Bom)].
Q.28. Whether fee for infrastructure partakes the character of Rent for the purpose of deduction of tax u/s 194I?
A.28. where fees collected from students were shared by assessee and it franchisees and the assessee for the purpose of its convenience, had categorized said fees shared as marketing claim and infrastructure claim. No tax is deductible on infrastructure claim u/s 194I. Please refer [CIT v NIIT Ltd. (2009) 184 Taxman 472 (Del) see also ACIT v Nib Ltd. (2008) SOT 44 (Del) (URO).
Q.29. Where rent paid to Co – owners separately will partake the character of rent paid to AOP?
A.29. No, please refer [CIT v Lally Motors (2009) 311 ITR 29 (P&H)].
Q.30. Whether TDS u/s 194I applies to premium payable for lease?
A.30. The definition of rent includes any payment by whatever name called [(CIT v Panbari Tea Co. Ltd. (1965) 57 ITR 422 (SC)]
Q.31. Whether hiring of storage tanks qualified either as land and building or hire charges?
A.31. The storage tanks in question did not qualify either as land or as building within the meaning of section 194I, what is attached to the land belongs to the land is a principle not applicable to India. Therefore, the structure though erected on land, could not be regarded as part of the land. Please refer [Gulf Oil India Ltd. V ITO (2000) 75 ITD 172 (Mum)].
Q.32. Whether provision of S. 194I shall attract where C&F agent provides other services in addition to storage?
A.32. Where the terms & conditions of the agreement are such that, to reveal that the agent not only stored the goods but also rendered certain other professional services like inventory management, packing, follow up, collection, maintaining banks account of the sale proceeds, under these circumstances it could not be said that the payment made by the assessee to them was in the nature of rent. Please refer [Eli Lilly & Co. (India) (P) Ltd. V DCIT (2006) 99 TTJ 461 (Del)].
EXTRACT OF SECTION 194-I OF THE INCOME TAX ACT, 1961
TDS ON RENT
194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of—
[(a) two per cent for the use of any machinery or plant or equipment; and
(b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:]]
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred and eighty thousand rupees]:
[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.]
Explanation.—For the purposes of this section,—
[(i) “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,—
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
whether or not any or all of the above are owned by the payee;]
(ii) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]
(Source – Book on Practical Aspects of Tax Audit, TDS, HUF & Capital Gains written by CA Agarwal Sanjay ‘Voice of CA’ & Team)