Introduction: Section 194I of the Income Tax Act, 1961, mandates tax deduction at source (TDS) on rent payments exceeding specified limits. This article delves into the provisions, rates, exemptions, and critical clarifications associated with TDS on rent.
Section 194I of the Income Tax Act, 1961, state as under:
Any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to (resident) any income by way of rent, shall, at the credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax there on at the following rates:
| On and from 1st April, 2019 payment of rent paid tax is to be deducted | Rate of TDS |
| If the amount of rent paid does not exceed Rs. 2,40,000 on any machinery or plant or Equipment | 2% |
| If the amount of rent paid does not exceed Rs. 2,40,000 on land or building (including Factory building) or furniture or fittings | 10% |
If an individual or Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceeds, one crore rupees in case of business or fifty lakh rupees in case of profession, 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.
No deduction shall be made under this section where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate, referred to in Section 10(23FCA), owned directly by such business trust.
Rent means any payment, by whatever named called, under any 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.
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.
As per Section 197A, if any person (other than Company or Firm) in receipt of rent has no taxable income, can supply Form No 15G / 15H for no deduction of tax.
Important clarification regarding Tax Deducted At Source (TDS)
As per notification no 718 dated 22nd August, 1995 by Central Board of Direct tax following clarification are made for TDS under section 194I.
(1) For the use of Land or building, tenant is paying nonrefundable deposit, it will considered as rent and Tax is to be deducted on that amount under section 194I. If the amount of deposit is refundable, no tax is to be deducted. If only interest is to be paid on this deposit, as per section 194A will apply and if amount of interest exceeds, tax is to be deducted.
(2) We have seen above that where housing charges are also to be considered as rent and tax is to be deducted on the amount of where housing charges.
(3) If the tenant has to pay municipal tax, land rent etc, for land or building, this payment is not to be considered as rent, hence no tax deduction is required.
(4) If rent is paid for land or building for using part of the property, then tax is to be deducted.
As per notification no 4/2001 dated 2nd March, 2001, if owner of the property is receiving Rent in advance, and tax is to be deducted on that rent, it was difficult to get credit of tax deduction at source, that under which year this amount to be claimed? The following clarification are made in this notification.
- If an advance rent is paid for more than one financial year, tax deduction certificate is issued for that amount, credit of this deduction of tax will available on that base of Single certificate in the year of deduction.
- After an advance rent received, the owner of property have cancelled the agreement of rent, repay the amount of advance rent or sold the property, and the amount of advance rent is transfer to new owner, new owner will get benefit of that amount of tax deducted in the year of transfer of the property.
As per notification no 4/2008 dated 28th April, 2008, it clarify that tenant has paid service tax on amount of rent, is not considered as income of rent and there is no need of tax deduction on this amount of service tax.
Tax deduction under section 194IB:
A person, individual or Hindu Undivided Family, who are not liable for tax audit, but if they paid rent per month of more than Rs. 50,000, they are liable to deduct tax on the amount of rent at the rate of 5%, which is applicable from 1st June, 2017.
Relief has been given to the tenant as under.
- There is no need to obtain Tax Deduction Number (TAN).
- Once in a year they can make the payment of TDS, it may be in the month of March.
It is advisable to be careful while paying rent, during the year.
Conclusion: Understanding Section 194I is crucial for landlords and tenants to ensure compliance with TDS regulations on rent payments. Detailed knowledge of applicable rates, exemptions, and clarifications helps in avoiding penalties and maintaining financial discipline.
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