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TDS on Rent - Section 194I, 194IB & 194IC Under Income Tax Act
“ Rent,” a word that horrifies people at the beginning or at the end of every month. Rent constitutes payments made for a lease, tenancy, sub-lease or other arrangements for properties like Land with a factory, Building with factory, Land, Machinery, Plant, Furniture, or Fittings.
The government has taken rental income under the umbrella of TDS provisions through Sections 194I, 194IB, and 194IC.
Section 194I relates to TDS on Rent
Section 194IB relates to TDS on Payment of Rent by Certain Individuals or HUF
Section 194IC relates to TDS on Payment Made Under Specified Agreement
What is TDS on Rent?
The rent received from the renting out or subletting of property is subject to Tax Deduction at Source(TDS). Tax Deducted at Source (TDS) is applicable on rent payments exceeding a certain threshold. As per Section 194-I of the Income Tax Act, 1961, TDS on rent is applicable when the annual rent paid or payable exceeds Rs. 2,40,000. TDS on rent applies to individuals or Hindu Undivided Families (HUFs) who are not liable to tax audit under Section 44AB of the Income Tax Act.
What is Section 194I of the Income Tax Act?
Section 194I of the income tax covers TDS on rent. It imposes an obligation for TDS deduction on persons (other than individual/HUF who are not subject to audit) making rental payments to resident Indians above a specified limit, i.e., Rs.2,40,000 in a year. The rent under this section broadly includes house rent, machine rent, building rent, office rent, furniture rent etc.
This section was introduced to bring rent under the ambit of TDS provisions as rent is a substantial source of income in India, which was escaping the tax net.
Who deduct TDS u/s 194I?
Any person (who is not an Individual/HUF) who pays another resident an income by rent must deduct TDS u/s 194I. But individuals or a Hindu undivided family who are covered under Section 44AB (a) and (b) 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 TDS under this section.
What are the rate and time of tax deduction u/s 194I?
The tax rate under this section is as follows:
- 2% for the use of any machine, plant, or equipment.
- 10% for the use of any land or building (including factory building), furniture or fittings.
What is the Limit of Tax deduction under 194I?
The time of deducting tax is earlier than the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft, or other modes).
- No TDS Requirement
- Where the amount paid as rent (at once or total in a financial year) to a payee (i.e., receiver) does not exceed 180000 240000. (the threshold limit was Rs. 1,80,000 until FY 2018-19).
- Where the rent is given to a business trust (such trust owns the asset), a real estate investment trust is referred u/s 10(23FCA).
What is the Meaning of ‘Rent’ in reference to Section 194I?
As per the explanation of Section 194I, rent means any payment made under lease or sub-lease or tenancy or any agreement for the use of the following:
- Building (including factory building)
What are some Special Considerations under section 194I?
- Amount paid as warehousing charge is liable to TDS u/s 194I
- The amount given as a security deposit to the owner of an asset is not liable to TDS u/s 194I if such amount is refundable in nature. But when that amount of ‘deposit’ is adjusted against rent, it becomes liable to TDS u/s 194I.
- Payment made for renting a business center is liable to TDS under this section.
- When accommodation in the hotel is taken regularly (i.e., under an agreement), then such payment attracts TDS under this section.
But, if such payment is made by an employee or individual (who represents the company) and is later reimbursed, then no TDS will be deducted.
What is Section 194IB of the Income Tax Act?
According to Section 194IB, it is mandatory for any person, i.e., individuals / HUF who is not liable to audit u/s 44AB, to deduct TDS for rent paid to a resident exceeding Rs 50,000 per month.
Who deducts TDS u/s 194IB?
Any person (who is an Individual/ HUF but not liable to audit u/s 44AB) who pays income by way of rent to a resident is required to deduct TDS under this section.
What is the rate & time of tax deduction u/s 194IB?
The rate of tax deduction is 5%, and if the PAN of the recipient is not available, then the rate will be 20% as per Section 206AA, or in case the receiver of rent is a specified person as per Section 206AB then the deduction would be at 10%. However, the amount of TDS cannot exceed the amount of rent paid for the last month. The time of tax deduction is earlier of
- The time of credit of rent (for the last month in the previous year or the last month of the tenancy if the property is vacated before or during the year), or
- The time of payment (via cash or cheque or draft or any other mode).
No TDS Requirement
- Where the amount paid by way of rent does not exceed Rs. 50000 per month (or part of it), then TDS is not required to be made.
- Also, to deduct TDS under this section then there is no requirement of TAN.
What is Section 194IC of the Income Tax Act?
Section 194-IC has been introduced to bring rent under the scope of ‘Joint Development Agreements.’ So let’s understand this section in detail:
Who deducts TDS u/s 194IC?
Any person paying a resident some consideration (not in kind) under a Joint Development Agreement has to deduct TDS u/s 194IC.
What is a Joint Development Agreement?
This is an agreement between the owner of an asset (land or building or both) who agrees to allow another person to build a real estate project on such asset in return for a share and/or payment in cash.
What is the rate & time of tax deduction u/s 194IC?
The rate of the tax deduction is 10%, and if the PAN of the receiver is not available, then the rate is 20%. The time of deducting tax is earlier, the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft, or other modes). Also, this section has no threshold limit (exemption limit).
What is the time duration for depositing TDS?
TDS needs to be deposited by the 7th of the subsequent month except for the month of March. For the month of March, TDS needs to be deposited by 30th April.
For rent payments u/s 194-IB, a challan cum statement under Form 26QC must be filed. This Form 26QC needs to be filed within 30 days from the end of the month in which TDS has been deducted.
Frequency and Mode of TDS payment under Section 194-IB
Tenants must deduct and pay the tax to the government. A challan-cum-statement, Form 26QC shall be filed. One important point is that a tax deduction account number (TAN) is not necessary to make the transaction under 194-IB.
What is the Penalty for delayed payment and delayed return filing?
Section 201(1A):- Late deduction or Late payment of TDS Late Deduction: In case TDS has been deducted late then in that case interest will be levied
- @1% per month or part of a month
- On the amount of TDS from the date when tax is deductible
- To the date when the tax is deducted.
Late Payment: In case TDS has been deducted but not deposited, then in that case interest will be levied
- @1.50% per month or part of a month
- On the amount of TDS from the date on which TDS was deducted
- To the date on which TDS was deposited.
Late fees will be payable under section 234E under the following circumstances-
The tax deductor fails to furnish the TDS statements within the prescribed due dates; or
The tax collector fails to furnish the TCS statements within prescribed due dates.
Penalty under this section is Rs. 200 per day.The penalty will be calculated till the failure continues by the deductor. However, the amount of penalty cannot be more than the amount of TDS for which return is required to be filed.
Let’s say ABC require to file his TDS return for Q2 (July - September) for which due date is 31 October and ABC filed his return for Q2 on 15th of November. In this case, total amount of TDS for which return needs to file is Rs. 2,500. Let us now compute what will be the amount of penalty u/s 234E ?
|Total no. of days of delay||15 days|
|Amount of TDS||2,500|
|Penalty u/s 234 E (Penalty or TDS amount, whichever is lower)||2,500|
Under this section, the Assessing officer can levy a penalty ranging from Rs. 10,000/- to Rs.1,00,000/-. The cases attracting penalty under section 271H include:
- In case no TDS/TCS return has been filed before the due date and
If the deductor provides incorrect information at the time of filing TDS
When the collector provides inaccurate information while filing TCS
TDS on rent by Individuals and HUFs
|Rent payer||TDS rate||Threshold limit|
|Companies, firms, trusts or association of persons, etc., and individuals or HUFs, where the payer is engaged in a business whose accounts were audited||10% of the rent.||TDS has to be deducted if the aggregate of the rent paid or likely to be paid during the year exceeds Rs 2.40 lakh|
|Individuals and HUFs not covered in the above section||5% of the rent.||TDS has to be deducted if the rent for each month or part of the month is more than Rs 50,000.|
TDS on rent paid to NRI
As per Section 195 of the Income Tax Act in India, when a tenant is making rent payments to a Non-Resident Indian (NRI) landlord for a property located in India, the tenant is required to deduct TDS at the applicable rate.
The applicable TDS rate for rent paid to an NRI landlord is generally 30%. However, the actual rate may vary based on any tax treaty agreements between India and the country where the NRI landlord resides.
How to Make TDS Payment Online?
For the offline process, deductors need to deposit TDS by submitting the challans physically at the bank branches. Counterfoil will be provided once the challan has been submitted. Counterfoil can be used as proof after being stamped by the bank for the future course of action.
For making TDS Payment Online, follow the link.
Frequently Asked Questions
Q- Whether payments made by a company taking premises on rent but styling the agreement as a business center agreement would attract the provisions of section 194-I.
The tax is to be deducted from the rent paid, by whatever name called, to hire a property. The deduction of tax at source does not depend upon the nomenclature but on the content of the agreement. In this case, though the agreement has been styled as a business center agreement , the substance of the payments is of the nature of rent. Hence, TDS under section 194-I is required to be deducted.
Q- Whether a contract for putting up a hoarding would be covered under section 194C or 194-I of the Act?
The contract for hoarding is like an advertisement, and advertisement comes under contract, and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and after that sub lets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C of the Act.
Q- On what amount is the tax to be deducted at source if the rentals include municipal tax, ground rent, etc.?
The tax deduction at source under section 194-I is to be done from income through rent. Rent has been defined, in the Explanation of section 194-I, to mean any payment under any lease, tenancy agreement, etc. for the use of any land or building. Thus, if the municipal taxes, ground rent, etc. are borne by the tenant, no tax will be deducted from such sum.
Q- Whether section 194-I is applicable to rent paid for using only a part or a portion of any land or building?
As per Explanation to section 194-I, 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 any building (including factory building), together with furniture, fittings and the land appurtenant to it, whether or not the payee owns such building. Further, the definition of any land or building would include a part or a portion of such land or building. Hence, Section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building.
Q- Where accommodation in hotel rooms is taken regularly whether tax is deductible u/s 194C or 194I?
As per circular 715/1995, the department has clarified that payments made by persons, other than individuals and HUFs for hotel accommodation taken on a regular basis will be in the nature of rent and will be subject to TDS under section 194-I. However, the department via circular 5/2002, has further clarified that where the arrangement is only for rate contracts (rate contract agreements are normally entered between corporates, tour operators, travel agents, etc. with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers), this will not be construed as rooms taken regularly, and therefore TDS shall not be applicable in such situation. Hence, TDS will only be applicable on payment of room rent to hotels where the rooms are taken regularly; however, where the arrangement is only for rate contracts, TDS shall not be applicable.
Q- What is the difference between section 194I and section 194IB?
Difference between 194I & 194IB can be understood as:-
|Person responsible for TDS deduction||(Individual and HUF) who are covered under Section 44AB (a) and (b) For other Assessee - no condition||(Individual and HUF)who are not covered under Section 44AB (a) and (b) For other Assessee - Section not applicable|
|Monetary Limit||Rs. 2,40,000/- per annum||Rs. 50,000/- per month|
|Applicable on which asset||Land, Building, Plant and machinery, furniture and fitting||Land and building only|
|TDS Rate||2% plant and machinery 10% Land, Building, furniture and fitting||5% on land and building|
|Time Limit of TDS deduction||At the time of credit or payment whichever is earlier||At the time of credit for the rent of last month or last month of tenancy Or At the time of payment whichever is earlier|
|Time Limit for payment of TDS||Within 7 days from the end of month in which it was deducted. (For March month - 30th April instead of 7th april)||30 days from the end of month in which TDS deducted|
|Form to be filed||26Q||26QC|
Q- Is GST applicable on Rent?
GST is applicable on rent of commercial properties and not on residential property rent
Q- Who deposits TDS on rent?
Person responsible for paying the rent will deduct TDS from such rent payment and deposit it to Govt.
Q- What happen If I don’t report my rental income?
Any Underreporting or misreporting of income attracts penalty under section 270A which can be 50% or 200% of the tax payable on such income not reported.
Q- How do I claim rent paid deduction?
Any Payment for Rent can be claimed as a deduction under section 10(13A) as HRA or 80GG.