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4.8 Star User Rating“ 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.
Where:
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
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.
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.
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.
The tax rate under this section is as follows:
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).
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:
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.
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.
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.
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
No TDS Requirement
Section 194-IC has been introduced to bring rent under the scope of ‘Joint Development Agreements.’ So let’s understand this section in detail:
Any person paying a resident some consideration (not in kind) under a Joint Development Agreement has to deduct TDS u/s 194IC.
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.
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).
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.
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.
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
Late Payment: In case TDS has been deducted but not deposited, then in that case interest will be levied
Section 234E:
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 ?
| Particular | Amount (Rs.) |
|---|---|
| Total no. of days of delay | 15 days |
| Penalty (15*200) | 3,000 |
| Amount of TDS | 2,500 |
| Penalty u/s 234 E (Penalty or TDS amount, whichever is lower) | 2,500 |
Section 271H:
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
| 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. |
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.
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.
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.
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.
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.
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.
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.
Difference between 194I & 194IB can be understood as:-
| Particulars | 194I | 194IB |
|---|---|---|
| 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 |
| TAN required | Yes | No |
| Form to be filed | 26Q | 26QC |
GST is applicable on rent of commercial properties and not on residential property rent
Person responsible for paying the rent will deduct TDS from such rent payment and deposit it to Govt.
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.
Any Payment for Rent can be claimed as a deduction under section 10(13A) as HRA or 80GG.
