CA Kapil GoelCA Kapil Goel

Any person who is not an Individual or HUF, who is paying any income to resident by way of rent is liable to deduct tax at source only in case the aggregate of the amount of such rent credited or paid or likely to credited or paid during the financial year by the aforesaid person to the account of, or to payee exceeds Rs. 1,80,000/-. Individuals and /or HUFs who are subject to tax audit are also under this obligation to deduct TDS.

In this, ‘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

h) Fittings whether or not any or all of the above are owned by the payee

 Sub-letting is also covered.

In case the landlord collects security or advance payment at the time of letting out a building to a tenant on the condition that the deposit will be refunded at the time of vacating the building, such a receipt is not in the nature of income and, therefore, no tax is to be deducted at source u/s 194-I. However, advance rent (not in the nature of refundable security deposit) paid is, subject to tax deduction. Moreover, where any such rent is credited to ‘suspense account’ or to any other account shall also be liable to deduct tax at source.

The Finance Act, 1994 inserted the Sec. 194-I, regarding deduction of tax from payment of rent. The Government felt that an item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way of rent. In a number of countries also such income is subject to deduction of income-tax at source.

Any person, not being an individual or a H.U.F., who is responsible for paying to a resident any income by way of rent is liable to deduct tax at source as and when aggregate of the amount of such income credited or paid or likely to be credited or paid during financial year exceeds Rs. 1,80,000/-. Individuals or H.U.F.s who were subject to tax audit under Sec. 44AB during the financial year immediately preceding the financial year in which such rent was paid or credited are also liable to deduct tax at source.

Income from letting out of factory building:- Where a factory building is let out, the rent received generally is income from business in the hands of the lessor or the owner of the factory. Only in a few cases it is income from property in the lessor’s hands. But such payment also, which is business income in the hands of the lessor and for which he will necessarily be paying advance tax and finally be returning the rental income, will be subject to tax deduction at source. This is an unnecessary burden on both taxpayer and the tax administrator, because collection of tax will take place as TDS from the lessor without much delay.

Rent includes service charges:– Service charges payable to business centres are covered under the definition of rent, as they cover payments by whatever named called.

TDS requirement where building and furniture, etc., let out by separate persons:- In case where building is let out by one person, and furniture, fixtures, etc., are let out by another person, then the payee is required to deduct tax under Sec. 194-I only from the rent paid/credited for the hire of building.

TDS requirement where rent not payable on monthly basis:- Sec. 194-I does not mandate that the tax deduction should be made on month-to-month basis. Therefore, if the crediting of the rent is done on quarterly basis then deduction at source will have to be made on the quarterly basis only. Where the rent is paid on yearly basis deduction also will have to be made once a year on the basis of actual payment or crediting.

Charges regarding cold storage facility:– In the case of cold storage where milk, ice cream, vegetables, etc., are stored, the payment may be styled as charges for use of plant and not for use of building. Cold storage is a plant.

Hall rent paid by an association for use of it:- Since the association is assessed as an association of persons and not as an individual or HUF, the obligation of tax deduction will be there, provided payment for the use of hall exceeds Rs. 1,80,000.

Payments to hotels for holding seminars including lunch:- Where hotels do not charge for use of premises but charge for catering/meal only, then provisions of Sec.194I would not apply. However, Sec.194C would apply for catering part.

No deduction in certain cases:-

  • Amount payable/paid not exceeding Rs. 1,80,000 during the financial year:- No tax from the amount payable in respect of rent is deductible where the amount of such rent credited or paid or likely to be credited or paid during the financial year to the payee landlord or lessee does not exceed Rs. 1,80,000.
  • Where tenant is individual or Hindu Undivided Family:- Deduction is not required under Sec. 194I if the amount is paid or payable by an individual or Hindu Undivided Family. If : (a) the individual/HUF is not to carrying on any business/profession or (b) individual/HUF not liable to tax audit in preceding year
  • Sharing or proceeds of film exhibition between a film distributor and a film exhibitor owning a cinema theatre:- Representations have been received from various quarters regarding applicability of the provisions of Sec. 194-I of the Income Tax Act to the sharing of the proceeds of film exhibition between film distributor and film exhibitor owning a cinema theatre. The matter has been examined by the Board and the Board is of the view that the provisions of Sec.194-I would not be attracted to such payment because: the exhibitor does not let out the cinema hall to the distributor. Generally, the share of the exhibitor is on account of composite services; and The distributor does not take cinema building on lease or sub-lease or tenancy or under an agreement of similar nature.
  • Where the payee is the Government at agency:– Under the provisions of Sec. 196, no tax is required to be deducted at source from any sums payable to the government. The matter with regard to the statutory authorities and the local authorities referred to, has been examined by the Board. Sec. 190 provides for deduction of income-tax at source as one of the modes of collection of income-tax in respect of an income, notwithstanding that the regular assessment in respect of such an income is to be made in a later assessment year. The income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, is exempt from income-tax under Sec. 10(20A). Similarly, the income of a local authority which is chargeable under the head ‘Income from house property’ or ‘Income from other sources’, is exempt from Income-tax under Sec.10(20). There is no other condition specified in these two clauses of Sec.10 which is necessarily to be satisfied to avail of the income-tax exemption. There is no requirement to deduct income-tax at source on income by way of ‘rent’ if the payee is the governmental agency. In the case of the local authorities and the statutory authorities, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about his tax-exempt status under clause (20) or (20A) of Sec.10 on the basis of certificate to this effect given by the said authorities.

When tax needs to be deducted at source:– Tax is required to be deducted at source at the time of credit of ‘income by way of rent’ 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.

Credit of rental income in ‘suspense account’: he incidence of tax deduction under Sec. 194-I will arise at mere incidence of crediting to the rental income in the lessee’s books of account, be it even a suspense account. The Explanation (ii) to sec. 194-I deemed such crediting to be credit of such income to the account of the payee.

Rates of tax deduction:-

Sr. No. Nature of Payment TDS %
1. Rent of Plant, Machinery or Equipment 2 %
2. Rent of land, building or furniture or fitting to individual or HUF 10 %
3. Rent of land, building or furniture or fitting to other than individual or HUF 10 %

No deduction or deduction at lower rate under Sec. 197:– On application by payee in Form no. 13, if the Assessing Officer is satisfied that this total income justifies no deduction of tax or deduction at lower rate, he may issue a certificate in Form No. 15AA to that effect directly to the payer.

Time limit within which tax is to be deposited: –

Due date for payment
Where the payment is made by or on behalf of the Government (i) On the same day (without using any challan form).
Where the payment is made in any other case than the Government:-a) If the amount is credited or paid in the month of March.b) In any other case. (a)  On or before April 30th.(b) On or before 7 days from end of month in which deduction is made where tax is paid accompanied by an Income-tax challan.

 Issue of TDS certificate to the payee:- In case of payments other than salary, TDS certificates are to be issued on quarterly basis in Form No.16A. As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. The certificate is to be issued by following dates :

Quarter Due Date for non-Government Deductors Due Date for Government Deductors
April to June 30th July 15th August
July to September 30th October 15th November
October to December 30th January 15th February
January to March 30th May 30th May

As per CBDT Circular No. 1/2012, dated 9-4-2012, it is mandatory for all the deductors to issue TDS certificate in Form No. 16A by generating the certificate through TIN central system by downloading the certificate from the TIN website with a unique TDS certificate number. These provisions are applicable in respect of all sums deducted on or after 1-4-2012. The certificate so issued can be authenticated either by using digital signature or manual signature.

FAQs

1. What are the provisions relating to TDS on rent ? From which date same are applicable?

As per the Finance Act, 1994 the provisions of TDS on rent have been introduced w.e.f. 1.6.1994. The salient feature of Sec. 194-I are as under:-

1. The provisions are applicable only in cases where the person making the payment of rent is an individual or HUF who is required to get his accounts audited u/s 44AB in the immediately preceding financial year (w.e.f. 1.6.2002) or any other person responsible for paying to a resident any income by way of rent. Prior to 1.6.2002 no individual or HUF was liable to deduct TDS from rent.

2. The TDS is required to be deducted in case the rent paid or payable to a particular person during a financial year exceeds Rs. 1,80,000 w.e.f.1.7.2010 (upto 30.6.2010 the limit was Rs. 1,20,000).

3. A facility has also been provided to obtain a certificate from the Assessing Officer for deduction of income-tax at a lower rate or for no deduction of income-tax in appropriate cases by making application in From No.13.

4. For the purpose of this section rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or factory building together with furniture, fixture, fittings and land appurtenant thereto. It will not be relevant whether the payee is the owner of the building or not?

W.e.f. asst. year 2007-08, the Taxation Laws (Amendment) Act, 2006 have enlarged the scope of rent for the purpose of Sec. 194I, so as to include machinery, plant and equipment, whether rented together with building or separately, irrespective of the fact whether they are owned by the payee or not?

5. The rates of TDS on rent are as under:

Particulars Rate upto 30.09.09 Rate w.e.f. 01.10.09
a)           Use     of    any     land, building,         furniture       or
fittings
15% (when payee is individual or HUF) 20% in other cases. 10% for all assessees
b)      Use of plant, machinery or equipment 10% (from 1.6.07 to 30.9.09) prior to 1.6.07 the rate was same as rent of land and building 2% for all assessees

W.e.f. Financial Year 2009-10, education cess or higher education cess is not required to be deducted at source in case of payment to domestic companies or any person who is resident in India. However, education cess is to be deducted in case the payment is made for salary.

6. W.e.f. 1.4.2010, where the deductee fails to furnish its PAN or furnishes an incorrect PAN to the deductor, the deductor will be required to deduct tax at higher of the following rates:

a. At the rate specified under the Income Tax Act; or

b. At the rates in force; or

c. At the rate of 20%.

2. Will tax be deducted from service tax included in rent?

Service tax paid by the tenant does not partake the nature of income of landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore tax deduction at source (TDS) under Sec. 194-I of the Income-tax Act would be required to be made on the amount of rent paid/payable without including service tax.

 3. What does the „rent‟mean for the purpose of Sec. 194-I?

Rent‘ means any payment, by whatever named 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

h.      Fittings,

whether or not any or all of the above are owned by the payee.

In other words, besides tax on land and building, tax shall now also be deductible for leasing out or hiring of machinery, plant, equipment, furniture and fittings whether given separately or together. Further, it shall be deductible whether or not any or all of the above are owned by the payee?

4. What are the circumstances under which no tax is to be deducted at source on rent as defined under Sec. 194-I ?

No tax is required to be deducted at source under this section if the following conditions are satisfied:

a) Where aggregate amount of rent does not exceed Rs. 180,000:- No tax is to be deducted if the aggregate amount of rent in the previous year does not exceed Rs. 180,000.

b) Rent paid to the Government and certain entities:No tax at source needs to be deducted from payments by way of rent made to Government and entities whose income is exempt from income-tax under clauses (20) and (20A) of Sec.10 of the Income tax Act.

c) Certain entities required to file return under Sec. 139(4A) or 139(4C):- As per rule 28AB certain entities who are required to file return of income under Sec. 139(4A) or 139(4C) may apply in Form No. 13 for no deduction of tax at source provided certain conditions are satisfied.

d) Certain entities whose income is unconditionally exempt under Sec. 10:- In case of certain entities whose income is unconditionally exempt under Sec. 10 and who are statutorily not required to file return under Sec. 139 there will be no requirement for TDS, since their income is any way exempt.

5. Where is the limit of Rs. 180,000 for non-deduction of tax at source applicable in case of each co-owner?

Where the share of each co-owner in the property is definite and ascertainable, the limit of Rs. 180,000 will be applicable to each co-owner separately.

6. What are the provisions regarding low deduction or no deduction of tax on rent under Sec. 194-I ?

Any person to whom rent is payable may make an application in Form No.13 to the Assessing Officer and obtain such certificate from him, as may be appropriate, authorizing the payer not to deduct tax or to deduct tax at lower rate.

As per Sec. 206AA(4), w.e.f. 1-4-2010, no certificate under Sec. 197 for deduction of tax at Nil rate or lower rate shall be granted, unless the application made under that section contains the Permanent Account Number of the applicant.

7. What is method of taking credit of TDS on advance rent ?

On advance rent pertaining to more than one financial year, the tax is deducted at source in the year of receipt of advance rent. The credit for TDS shall be allowed to the assessee in the same proportion in which such income from rent is offered for taxation for different assessment years, based on the single TDS certificate furnished for the entire advance rent.

However, if the rent agreement gets terminated in a subsequent year or rented property is transferred and the balance advance is refunded to the transferee or the tenant, as the case may be, the credit for entire balance of TDS which has not been given credit, shall be allowed in the year of termination.

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Tags : CA Kapil Goel (13) section 194I (48) TDS (981)

37 responses to “TDS on Rent under section 194I of Income Tax Act, 1961”

  1. L G Patil says:

    Rent on machinery hiring is 2%. under what section we file tds return?

  2. koustuv says:

    Hello Taxguru,
    we rent out our area to a bank. Now my father and mother is getting rent from the bank which is more that 180000/-
    And because of which bank deducting TDS on the rent they are paying

    Now my parents does not had any other source of income apart from rent which is coming below 2lacs. So ideally as per income Tax rule that rent income should be tax free.

    But bank is telling as per U/S 194 I they will deduct.

    I know that at the end of the year while filing return we can get that refunded. But is there anyway which can declare so that bank will not deduct the TDS each month.

  3. ashish mehta says:

    I like to ask/….

    my tenant is giving me rent of 25000p.m.
    he is not ready to deduct t.d.s. on the same.
    what will be the consequences of tax liability on him as well as on me.
    thank you.

  4. ashish mehta says:

    i have a question…

  5. Vinayak Jha says:

    There is no clarification on type of property on rent. My request to all is to clarify that if a persons earns rent of Rs. 40000/- per month (total 4,80,000/- per year) from residential property. should the tenant (A company) deduct the TDS from rent and give balance payment to landlor.

  6. saroj says:

    Mr. Kapil sir.
    We paid pm month use of land and building use for restraint service but on agreement i paid minimum guarantee fee liable to deduct tds or not. in which section and minimum guarantee fee cove in which section.

  7. Umesh says:

    As per recently announced Budget 2017, individuals and HUF who pay rent of Rs.50,000 or above will have to deduct TDS at the rate of 5%. This change will be effective 01.06.2017. It means annual rent payment Rs. 600000/-. Is this applicable also to AOP/TRUST, NBFCs also? because of U/s 194-I payment of rent restricted to Rs.180000/- annual for No TDS.

  8. Vishal says:

    Dear Sir,
    I have a query regarding TDS applicable rates on my one of the client. The matter is We are hire them to publicity our venue regarding that they put our holdings at some place. The place is become under Municipal corporation. And we are paying to service provider for this specific service and they deduct 15% Service tax on it.

    I need to clarification which applicable tax rates in this particular case.
    Thanks

  9. Anil Singhal says:

    Dear Sir

    If there are two co owners of the property and rent is credited in the account of one owner on a self declaration that they do not have joint account and credit the rent in one of the joint owners account. What wil be the limit? If total rent credit is Rs. 350000, will the company need to deduct tax.

  10. Mrigen says:

    Dear Sir

    Is sec 194I and 194IB is same?

    Regards
    Mrigen

  11. NAVEEN says:

    Sir, Where in the Section 194I or in the IT Act, mentiones that Non Audit CAses Individuals/HUF need not deduct tax at source. I have tried to find but not succeeded. Please inform me the details. Thanks for your Valuable input.

  12. Yogesh says:

    hello, i provide web server hosting services to the clients. i have sublet one server (i took for 1 year on lease from a company in US) and given it for use to an indian client for 1 year. total amount for 1 year is rs 1.25k and company has deducted my tds at 10%

    whereas no one else has deducted tds on this service but this client isnt agreeing to 194i clause and saying its professional service and deducted 10%

    tell me what is right? even i dont have a margin of 10% on that server sub-letting.

    also keep in mind, i have a small proprietor company and this invoice was raised on 10th June 2016.

    so what should be the correct deuction on this service?

    kindly advice as it has caused hell lot of confusion for me…

  13. Rahul Krishna Dey says:

    I have deducted TDS on machinery and submit TDS return by selection 4IA in the TDS preparation utility. But TDS Certificate generated as 194IA. How can I generate the Form 16A using 194I

    Please answer by mail, if possible.

  14. Gautham says:

    Dear Sir
    If the total rent payment for the FY-2015-16 is Rs. 2,40,000/-, then would the TDS be Rs. 24,000/- (10% of Rs. 2,40,000/-) or would it be Rs. 6,000/- (10% of Rs. 2,40,000/- minus Rs. 1,80,000/-)

    Warm Regards
    Gautham

  15. RAKESH S says:

    Sir, please confirm whether a builder / developer can deduct TDS on rent payable to tenants / members of a co-operative housing society which is under redevelopment project. Here the rent is paid as compensation for the alternate accommodation for a temporary period.

  16. KHUSHI says:

    SIR,
    I HAVE AUDITED FIRM AND I HAVE TAKEN A COMPLETE BUILDING WITH IT’S PLANT AND MACHINERY AND FURNITURE ON RENT AND I HAVE TO PAY RENT IN THIS YEAR MORE THEN 1,80,000RS AND AMOUNT FOR BUILDING AND MACHINERY ARE NOT SEPARATELY ASSESSABLE
    SO I WANT TO ASK THAT WHAT WILL BE THE RATE OF TDS ON WHOLE AMOUNT WEATHER ITS WILL BE 2% OR 10%

  17. Suraj Bothra says:

    Hi,
    One of my friend is doing profession and he has professional receipt in this year in Dec 15 greater than 25 Lac. He has applied for TAN now.Just having query whether he is liable for deduction of TDS for full year ( Rent per month 50k) or from Dec onwards. Could you please provide some more details on this ?

  18. Rajesh says:

    Sir
    I have a house registered on my name. I have let out this house on lease to my mother on lease,who had further let out this house to third party. This third party has deducted TDS@10%. Income tax return of my mother showing income from subletting under head,”Income from other sources” has been filed, however, TDS deducted has not been refunded might be due to deduction of TDS under House property, however.income is from house property. Whether above course of action is correct or not.

    Rajesh

  19. shridhar says:

    IS THIS RULE APPLICABLE IF RENT IS PAID IN 2015-16 FINANCIAL YEAR ALSO

  20. NAVEEN says:

    WHAT IS THE TDS LIMIT FOR INDIVIDUALS FOR HOUSE RENT

  21. ANOOP PANDEY says:

    dear Sir,

    one of our vendoe is charging bill on square feet basis for erctioning a structure on temporary basis made of tarpaulin & bamboo please tell under which section tds will be deducted and rate of tax.

  22. Saurabh says:

    I understand Senior Citizens are not required to pay Advance Tax.

    My Dad is a senior citizen, he has income from pension & Rent from Property. His annual income from rented property is above Rs.1,80,000, now the tenant is deducting 10% TDS every month. Is there any provision where my dad is not required to deduct TDS every month and he can pay related tax at the end of the financial year?
    Please provide me with ITR Section which is related to the same.

    • Guru says:

      TDS is not required to be deducted since your father is not eligible for tax audit under section 44AB, for further clarification read section 194I

  23. Sriprakash says:

    Sir, pls clarify. TDS@10% was dectible on rent payment but by oversight not deducted. Should we now deduct all arrears and remit. Is penalty or interest payable.

  24. rahul says:

    if rent is subsequently incresed during the F.Y,due to which it crosses the limit of 180000,then how will be tds deducted on rent paid prior to increase during F.Y.

  25. CA RAJESH MEHTA indore says:

    Section 10(20A) has been deleted by the Finance Act, 2002, so now income of authorities satisfying need for housing etc. have become taxable, therefore TDS will have to be deducted on payment to them.

  26. CA Kapil Goel says:

    Ya, Mr. K.S. Singhal Ji, TDS provisions u/s 194I will be applicable only if rent paid is in excess of prescribed limit of Rs. 1,80,000 p.a.

  27. CA Kapil Goel says:

    Mr. Sandeep, You have to deduct TDS from rent of Building and from rent of furniture provided amount paid or to be paid during a financial year exceeds 1,80,000.00

  28. CA Kapil Goel says:

    Ya, Thanks Mr. Vikash Agarwal. I also saw that. There is some alignment problem only.

  29. Rawal Singh Bhati [hamira, jaisalmer] says:

    @Umesh

    Please specify nature of licence
    And specify which goverment issue

  30. umesh shah says:

    is tds. to be deducted on payment of royalty for use of a licence .issued by govt.

  31. K S Singhal says:

    It may kindly be clarified as to whether TDS provisions u/s 194I will be applicable only if rent paid is in excess of prescribed limit of Rs.180000/pa.

  32. Rawal Singh Bhati says:

    @Mr. Sandeep ignore my last advice,

  33. Rawal Singh Bhati says:

    Mr. Sandeep

    194I do not attracts to rent of furniture, you have to deduct in respect to your building rent

    [since both is provided by seprate person]

  34. sandeep says:

    TDS requirement where building and furniture, etc., let out by separate persons
    Please sir Clear the again to me

  35. VIKASH AGARWAL says:

    Mr. Kapil please correct due date of payment.

    a) If the amount is credited or paid in the month of March. – Due Date – On or before April 30th.

    b) In any other case. – Due Date On or before 7 days from end of month in which deduction is made.

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