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Section 194I, 194IB & 194IC Under Income Tax Act
Rent constitutes payments made for a lease, tenancy, sub-lease or other arrangements for properties like: Land with factory, Building with factory, Land, Machinery, Plant, Furniture, or Fittings.
The government has taken rental income under the umbrella of TDS provisions through Section 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
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) 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 has the need to deduct TDS u/s 194I?Any person (who is not an Individual/HUF) pays to another resident an income by way of rent is required to deduct TDS u/s 194I. But individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed 74[one crore rupees in case of business or fifty lakh rupees in case of profession] 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 income-tax under this section.
What is the meaning of Rent with respect to the 194I?As per explanation of Section 194I, rent means any payment made under lease or sub-lease or tenancy or any agreement for use of the following:
- Land
- Building (including factory building)
- Machinery
- Plant
- Equipment
- Furniture
- Fittings
The rate of tax under this section is as follows:
- 2% for the use of any machine or plant or equipment.
- 10% for the use of any land or building (including factory building) or both or furniture or fittings.
The time of deducting tax is earlier of, 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. From the Financial Year 2019-20, this limit has been increased to 240000.
- Where the rent is given to a business trust (such trust owns the asset) which is a real estate investment trust as referred u/s 10(23FCA).
- 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 then it becomes liable to TDS u/s 194I.
- Payment made for renting a business center is liable to TDS under this section.
- When an accommodation in the hotel is taken on a regular basis (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 available.
What is Section 194IB of the Income Tax Act?
194I deals with TDS on Payment of Rent by Certain Individuals or HUF makes only those individuals/HUF liable to TDS whose total sales, gross receipts or turnover from the business or profession carried on by him exceed 74[one crore rupees in case of business or fifty lakh rupees in case of profession] during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid. Hence, to widen the coverage and bring in those individuals or HUF who pay a big amount of rent but are still not liable to audit, Section 194IB was introduced in Budget 2017.
Who needs to deduct TDS u/s 194IB?Any person (who is an Individual/ HUF but not liable to audit u/s 44AB) 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 if 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. 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 during the year), or
- The time of payment (via cash or cheque or draft or any other mode).
- Where the amount paid by way of rent does not exceed ?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 194-IC of the Income Tax Act?
Section 194-IC has been recently introduced with the objective to bring rent under scope ‘Joint Development Agreements’. So let’s understand this section in detail:
Who has to deduct TDS u/s 194IC?Any person paying to 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 (being land or building or both) who agrees to allow another person to build a real estate project on such asset, in return for 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%. 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, there is no threshold limit (exemption limit) under this section.
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. However, 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 needs to be filed. This Form 26QC needs to be filed within 30 days from the end of the month in whichTDS 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 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 but not deposited to the government then in that case interest will be levied
- @1.5%per month or part of a month
- On the amount of TDS from the date in which TDS was deducted
- To the date in which TDS was deposited.
Late Payment : In case, TDS has not been deducted then in that case interest will be levied
- @1%per month or part of a month
- On the amount of TDS from the date in which TDS was deducted
- To the date in which TDS was deposited.
-
Section 234E :
Penalty under this section is Rs. 200 per day.the penalty shall 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 is required 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, the total amount of TDS for which return needs to be filed is Rs. 2,500. Let us now compute what will be the amount of penalty u/s 234E ?
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 includes:
- In case no TDS return has been filed before the expiry of a period of one year from the due date and
- TDS deducted, late filing fees & interest amount has not been deposited to the government.
Explain Online TDS Payment Procedure
To make the payment of TDS online follow the step by step process explained hereunder
- Step1: Go to TIN NSDL official website: https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
- Step 2: Select the type of challan applicable
- Form 26QC will open up as shown below
- Step 3: Form 26QC will open up as shown below
- Step 4: Fill in the requisite details to make the payment.
Frequently Asked Questions
Q- Whether payments made by a company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I?
The tax is to be deducted from the rent paid, by whatever name called, for the hire of 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 centre 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 in the nature of 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 thereafter 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 the tax is 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 by way of 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 on such sum.
Q- Whether 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 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 thereto, whether or not such building is owned by the payee. Further, the definition of the term any land or any 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 on a regular basis 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 accomodation 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 contract (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 on a regular basis 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 on a regular basis, however, where the arrangement is only for rate contract, TDS shall not be applicable.
Q- What is the difference between section 194I and section 194IB?
Difference between 194I & 194IB can be understood as:-
| Particulars | 194I | 194IB |
| Person responsible for TDS deduction | (Individual and HUF) If total turnover exceeds Rs. 1 crore for business and Rs. 50 lakh for profession
For other Assessee - no condition |
(Individual and HUF) If total turnover doe not exceeds Rs. 1 crore for business and Rs. 50 lakh for profession
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 | 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 end of month in which 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 |
Q- Is GST applicable on Rent?
GST is applicable on rent of commercial properties and not on residential property rent, However, applicability of GST depends upon the turnover of person receiving such income.
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 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.
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