What is Section 194I TDS on Rent?
According to Section 194I, rent is defined as a payment made under a lease, sub-lease, tenancy, or any agreement to use land, building, machinery, plant, equipment, furniture, fittings, or land adjunct to a building, regardless of whether the payee owns it. Additionally, subletting is considered a rent payment.
Rent is an essential income component for many individuals and is subject to taxation. To successfully streamline the payment of TDS on rent, individuals need to pay it on time and as per the provisions of the ITA. The purpose is to make the taxing process easy and prevent rampant evasion of income tax in the guise of rental income.
Why TDS on Rent?
The government introduced the provision to cover income through rent under tax deduction at source. In other countries, such income is subject to income tax deduction at the source (TDS). Capturing such transactions at source improves compliance and ensures a steady flow of revenues to the government.
The actual meaning of ‘rent’ in section 194I
· Rent means any payment under any lease, tenancy or other agreement for Land use.
· Building (including factory building)
· Machinery
· Plant
· Equipment
· Furniture
· Fitting
Tax Deductions and Rates on Rent
· Rates for tax deduction depend upon the nature of the property for which rent is paid.
· Rent for plant, equipment and machinery is 2%
· Rent for land, building, furniture and fitting is 10%
Documentation Required for TDS on Rent
The payer must furnish the payee landlord’s PAN to avoid a higher deduction rate. Without such a PAN, the TDS rate would be 20% under Section 206AA, the specified rate.
Who is Liable to Deduct TDS u/s 194I?
In Budget 2017, a new section was introduced where the individual/HUF (not covered under tax audit) paying rent to a resident exceeding Rs 50,000 per month is also liable to deduct TDS @ 5%. This amendment will be effective from 1 June 2017. However, the TDS provisions for said purpose are covered under Section 194-IB.
· The person (not being an Individual or HUF) who pays rent to a resident is liable to deduct tax at source.
· Individuals or HUF liable for tax audits are responsible for deducting tax at source under Section 194I.
· The TDS needs to be deducted if the total rent amount of such income paid or likely to be paid during the financial year by the person above to the account of the payee exceeds Rs 2,40,000. The said limit was Rs 1,80,000 until FY 2018-19.
Under What Circumstances TDS u/s 194I is Not Deductible?
The amount payable/paid not exceeding Rs 2,40,000 during the financial year:
No tax is required to be deducted if the rent due or paid is at most Rs 2,40,000 during the financial year (earlier, it was Rs 1,80,000).
Where a tenant is an individual or Hindu Undivided Family:
The deduction is not required under Sec. 194I when the rent is due or paid by an Individual or HUF not conducting a business audited under income tax law.
Who Should Deduct TDS on Rent?
Section 194I applies to all taxpayers except individual or Hindu undivided families who are not under a tax audit. This comprises corporate entities, partnership firms, and individuals or HUFs liable to undergo tax audits (those whose business turnover or professional receipts exceed the monetary threshold laid under the Income Tax Act for carrying out a tax audit).
When to deduct TDS for Rent?
TDS under section 1941 should be deducted when rent is credited to the payee’s account or at the time of payment, whichever is earlier.
What are the consequences of TDS non-payment?
Here are some consequences of non-payment of TDS:
· TDS not deducted: Pay interest at 1% per month until TDS is not deducted.
· TDS deducted but not deposited: A taxpayer who has deducted tax but not deposited it to the government is liable to pay 1.5% interest till the date of deposit of TDS.
How to calculate Rent TDS?
ABC Ltd. operates in a rented office. Mr Rajan pays the property owner a monthly rent of Rs. 40,000 and Rs. 2000 for the rented machinery.
Calculate Mr Rajan’s TDS liability.
Rate of TDS
2% for machinery and 10% for office building (as per section 194I)
Total tax liability of Mr. Rajan:
10% of 40,000 + 2% of 2000
= 4000 + 40
= Rs.4040
What is the Time Limit for Depositing TDS?
· Where the payment is made by or on behalf of the Government– On the same day (without using any challan form)
· Where the payment is made in any other case than the Government– On or before seven days from the end of the month when deduction is made, tax is paid accompanied by an Income tax challan.
TDS on Rent Paid to NRI
If you pay rent to an NRI, TDS @ 30% + surcharge + 4% cess must be deducted. TDS must be deducted irrespective of the rent paid to an NRI, as there is no limit on rent payment. However, the NRI may obtain a no or lower deduction certificate if his income in India exceeds the basic exemption limit.
FAQs
What is TDS on rent?
It means the amount deducted from the source while making a rent payment if the amount paid exceeds the prescribed level as per the Income Tax Act.
What is the rent limit for TDS?
The limit of TDS on rent under section 194-I is Rs. 2.4 lakhs per annum, and under section 194-IB, it is Rs. 50,000 per month.
Will tax be deducted from the GST added to my rent?
No, service tax is not considered part of the landlord’s income. Therefore, tax is deducted under Section 194I without including the GST.
Which form should I file when no tax applies to my income?
If there is a Nil tax applicable to your income and you are receiving rent as income, you can file Form 15G or Form 15H for non-deduction of TDS.
What should I do if the landlord does not provide a PAN?
If the landlord does not provide a PAN, TDS on rent must be deducted at 20%, per Section 206AA.
When should a TDS certificate for rent be issued?
Corporate tenants will be issued a TDS certificate in Form 16A quarterly. In the case of individual tenants covered under Section 194IB, Form 16C will be issued within 15 days from the due date of depositing the TDS.
Can TDS on rent be adjusted against other income?
No, TDS deducted on rent has to be precisely accounted for and cannot be adjusted against other income taxes or refund claims.
What happens if TDS on rent is not deducted or deposited on time?
Non-deduction or non-deposition of TDS on rent attracts interest charges at 1% per month for non-deduction and 1.5% per month for non-deposition from the date TDS was due until it is deposited.
