Section 194I was inserted vide the Finance Act, 1994. The present article covers the important section 194-I of the Income Tax Act, 1961, which deals with the provisions of ‘TDS on Rent’.
Meaning of the term ‘Rent’ –
Before going into the nitty-gritty of the provisions of section 194-I of the Income Tax Act, 1961, first of all, let us understand the term ‘Rent’ which has been explained under Explanation (i) to Section 194-I –
Rent means any payment under any lease / sub-lease / tenancy or any other agreement or arrangement for the use of any of the following –
It should be noted that it makes no difference even if the payee does not own any or all of the above listed items.
Category of a person liable to deduct TDS on Rent under section 194-I of the Income Tax Act, 1961 –
Section 194-I requires any person making payment of ‘Rent’ to a resident person to deduct tax at source (TDS).
Following table explains the basic coverage of section 194-I –
|Coverage under section 194-I||Not covered under section 194-I|
|Category of Payer / tenant||Any person paying Rent.||–|
|When payer (tenant) is individual / HUF||The Individual / HUF whose sales, gross receipts or turnover exceeds the limit specified under section 44AB (a) or section 44AB (b).||Any other individual / HUF|
|Payment of rent
|Rent is paid to a resident person||Rent payable to a non-resident person not covered under section 194-I (the same is covered under section 195).|
If the payer is liable to deduct TDS under section 194-I, then, TDS is to be deducted within earlier of the following dates –
|Particulars||Rate of TDS|
|Renting of machinery / plant / equipment||2%|
|Renting of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings||10%|
However, in case the PAN is not furnished, the payer / tenant would be liable to deduct TDS on Rent at maximum marginal rate i.e. 20%
Section 194-I of the Income Tax Act, 1961 provides that no TDS would be deducted if the income credited / paid during the Financial Year does not exceed INR 2,40,000.
Please note that earlier the threshold exemption limit was INR 1,80,000, however, from Financial Year 2019-2020 the threshold exemption limit for TDS on Rent has been increased to INR 2,40,000.
1. The aggregate amount paid / payable during the Financial Year doesn’t exceed the threshold exemption limit i.e. doesn’t exceed INR 2,40,000.
2. The payer / tenant is an individual or HUF who is not liable to tax audit as per section 44 (AB) clause (a) or (b).
3. Rent is paid / payable to a Government agency.
4. Sharing of proceeds between a Film Distributor and Exhibitor owing the cinema theatre –
The proceeds shared between the film distributor, and the owner of the cinema theatre (Exhibitor) will not attract TDS under Section 194-I since the share of film exhibitor is on account of composite service and the share / payment is not in the nature of rent.
Important clarifications –
1. Applicability of TDS on security deposit –
The landlord generally collects security deposit at the time of letting out of the property. TDS is not to be deduct on such security deposit only if the security deposit is refunded back to the tenant at the time of vacating the property.
However, if the security deposit is adjusted against the rent, then, TDS is deductible on the same under section 194-I of the Income Tax Act, 1961.
2. Service Charges –
TDS is deductible on the service charges payable to business centers since service charges are covered within the ambit of term ‘Rent’.
3. Separate letting of furniture and building –
There can be a situation wherein, the building is let out by one person and the furniture, fixture etc. are let out by another person. In this case, TDS would be deductible under section 194-I of the Income Tax Act, 1961 only from the rent payable for letting out of the building.
4. Rent payment to the hotel for the conduct of seminar including meal –
When the hotel is rented out for the conduct of a seminar which includes a meal, then, in such case hotel charges for catering / meal and hence TDS is not deductible under section 194-I. However, the same can get covered under section 194-C.
Frequently Asked Questions (FAQ) –
1. What is section 194I?
Any person (not being an individual or HUF) paying rent to a resident person is liable to deduction TDS on Rent as per the provisions of section 194-I of the Income Tax Act, 1961.
2. What is the exemption limit for TDS on rent?
The TDS on Rent is not required to be deducted if the aggregate amount during the Financial Year doesn’t exceed INR 2,40,000.
3. Is TDS deducted on security deposit of rent?
No TDS is to be deducted on security deposit of rent, if the deposit is refunded back by the landlord. However, if the security deposit is adjusted against rent, then, TDS is deductible on the same.
4. What happens if TDS is not deducted on rent?
If the payer / tenant is liable to deduct TDS on rent, however, the same has not been deducted, then, the payer / tenant would be liable to pay the penalty @ 1% per month from the date the tax was to be deducted till the date tax actually deducted.