TDS on Rent Section 194I

Section 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.

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Rent means any payment under any lease / sub-lease / tenancy or any other agreement or arrangement for the use of any of the following –

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=Land or

=A building which includes factory building or

=Land appurtenant to a building which also includes factory building or

=Plant or

=Machinery or

=Furniture or

=Equipment or

=Furniture or

=Fittings

Time to Deduction: If the payer is liable to deduct TDS under section 194-I, then, TDS is to be deducted within earlier of the following dates :

-At the time of credit of Rent to the account of the payee; or

-At the time of payment of Rent through Cash/cheque/draft or any other payment mode.

Rate of TDS : Old 2% and New 1.5% Renting of machinery / plant / equipment.

Old 10% and New 7.5% Renting of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings.

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%.

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Threshold Exemption Limit

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.

Circumstances, wherein, TDS is not deductible under section 194-I :

=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.

=The payer/tenant is an individual or HUF who is not liable to tax audit as per section 44 (AB) clause (a) or (b).

=Rent is paid / payable to a Government agency.

=Sharing of proceeds between a Film Distributor and Exhibitor owing to 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.

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Important clarifications

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 deducted 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.

Service Charges: TDS is deductible on the service charges payable to business centres since service charges are covered within the ambit of term ‘Rent’.

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.

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.

Regards

Compiled by CA Sunil Sakral