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.
TDS must be deducted at the earlier of the following two events:
- At the time of credit of the rent to the account of the payee (receiver).
- At the time of actual payment of the rent, whether in cash, cheque, draft, or any other mode.
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).
TDS on rent limit:
- 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:
- Land
- Building (including factory building)
- Machinery
- Plant
- Equipment
- Furniture
- Fittings
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% but it has been reduced from 5% to 2%, effective from October 1, 2024. However, 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?
Under Section 194IC of the Income Tax Act, the responsibility to deduct TDS (Tax Deducted at Source) lies with any person who is paying a resident any sum by way of consideration under a Joint Development Agreement (JDA). This means that the developer or any other party making the payment to the landowner or property owner under the JDA must deduct TDS at the applicable rate
What is a Joint Development Agreement?
A Joint Development Agreement (JDA) is a legal contract between a landowner and a real estate developer. Under this agreement, the landowner provides the land, and the developer undertakes the construction of the project.
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%.
TDS must be deducted at the earlier of the following two events:
- At the time of credit of the sum to the account of the payee.
- At the time of actual payment, whether in cash, cheque, draft, or any other mode.
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.
Penalties for Delayed TDS Payment and 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.
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
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.
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