Written by
Updated :
Reviewed by
On this Page
Tax Deducted at Source (TDS) is the system of collecting tax on income or dividends. It makes the payer liable to deduct tax due before paying the remaining amount to the payee. As per laws, the tenants need to deduct TDS on rent before paying the amount. This deduction falls under Section 194I of the Income Tax Act, 1961 which is solely dedicated to TDS on rent. Let us understand how TDS on rent is calculated or deducted in India.
What is Section 194-I of The IT Act?
Tax Deducted at Source (TDS) is the system of collecting tax on income or dividends. It makes the payer liable to deduct tax due before paying the remaining amount to the payee. As per laws, the tenants need to deduct TDS on rent before paying the amount. This deduction falls under Section 194I of the Income Tax Act, 1961 which is solely dedicated to TDS on rent. Let us understand how TDS on rent is calculated or deducted in India.
Section 194I of the Income Tax Act defines the provisions related to the TDS on rent limits. It is primarily crucial for those Indian citizens who earn a rental income by renting or subletting their properties.
The rent received is subject to deduction of TDS under Section 194-I[1], being an additional income for the property owners.
Also Read: What is Tax Deducted at Source?
Under Section 194-I, an individual who pays rent is liable to deduct TDS on rent when the total rent paid or likely to be paid in a specific financial year exceeds Rs. 2.4 lakh.
a) Some other important facts related to TDS on rent limits and Section 194-I are as follows:
· Individuals and Hindu Undivided Families (HUFs) whose turnover during the year exceeds the limits as specified in the section (Rs. 1 crore in case of business and Rs. 50 Lakhs in case of profession) are also liable to deduct TDS on rent under this section.
· The threshold for deduction of TDS on rent has been increased from Rs.1.8 lakh to Rs.2.4 lakh from the financial year 2019-20 onwards.
Related Articles
Related Articles
What is ‘Rent’ Under Section 194I?
Concerning Section 194I, ‘rent’ is defined as any payment, by whatever name called made to an individual under lease, sub-lease, or tenancy or any other arrangement for using any of the following options:
What is ‘Rent’ Under Section 194I?
Concerning Section 194I, ‘rent’ is defined as any payment, by whatever name called made to an individual under lease, sub-lease, or tenancy or any other arrangement for using any of the following options:
1) Land
2) Building, which can be of a factory
3) Land appurtenant to an establishment
4) Machinery, plant or Equipment
5) Furniture
6) Fittings
This definition holds true irrespective of whether the payee solely owns the options defined above, as covered under Section 194-I.
Some other important terms related to rental income over which TDS on rent limits are applicable include:
1) It also covers subletting of properties.
2) The receipt of refundable security or advance payment collected by a landlord while letting out a building is not considered an income. Hence, no TDS on rent payment is to be collected on it.
3) TDS is applicable to the non-refundable advance rent that a payee receives, as per the rate of TDS on rent.
What are the TDS Rates on Rent Deductions?
The following table covers different rates of TDS on rent:
Nature of Property/Asset |
Rate of TDS on Rent |
Rent paid for plant, machinery, or equipment |
2% |
Rent paid for land or building |
10% |
Rent paid by an individual/HUF whose turnover doesnot exceed the limits specified in 194-I |
5% (provided the rent paid exceeds Rs. 50,000 per month) u/s 194IB |
Rent paid for furniture or fittings |
10% |
You should also know that in case the assets are jointly held by more than one individual, the provision related to TDS on rent payment is slightly different.
Also Read: TDS Rates
For such situations, Section 194I of the IT Act says that TDS on rent is payable only if the share of any one of the individuals/owners is higher than Rs.12.4 lakh in a specific financial year.
See how the latest budget impacts your tax calculation. Updated as per latest budget on 1 February, 2020. No deductions will be allowed under the new tax regime.
What are Indirect Rent Payments Under Section 194-I?
Alongside TDS on house rent or other possessions, certain indirect rent payments also come under the purview of Section 194I. Given below is a list of payments on which TDS is charged but they are not rent per-se:
1. Payments made to hotels for official meetings (even though the hotels only charge money for catering services, not the premises).
2. Payments made to get cold storage facility for the preservation of perishable items.
3. Rent received on offering a factory building to a tenant.
4. Service charged paid to various business centers.
5. Rent paid for building and furniture.
Who Deducts TDS on Rent Under Section 194-I?
A person, except an individual or HUF, who has paid or is likely to pay rent of more than Rs. 2.4 lakh in a financial year to a landlord is liable for deduction of TDS on rent.
Budget 2017 stated that an individual/HUF (other than those covered in section 194-I) pays rent exceeding Rs. 50,000 in a month are also liable to deduct TDS on rent payment u/s 194IB. This amendment in Section 194I for TDS is in effect from June 1, 2017, with the rate of TDS on rent being at 5%.
Who Deducts TDS on Rent Under Section 194-I?
A person, except an individual or HUF, who has paid or is likely to pay rent of more than Rs. 2.4 lakh in a financial year to a landlord is liable for deduction of TDS on rent.
Budget 2017 stated that an individual/HUF (other than those covered in section 194-I) pays rent exceeding Rs. 50,000 in a month are also liable to deduct TDS on rent payment u/s 194IB. This amendment in Section 194I for TDS is in effect from June 1, 2017, with the rate of TDS on rent being at 5%.
When is TDS on Rent Deducted?
TDS on rent is deducted at source when an individual credits the rent amount to the landlord’s account. In case the rent is paid via cash, cheque, or draft, then the deduction of TDS on rent payment happens at the time of actual payment, whichever is earlier.
What are the Exceptions for TDS on Rent Deductions?
TDS under Section 194I is not deductible in the following circumstances:
1. No TDS on house rent or other rent payments, is deducted if the rent amount, whether due or paid, is up to Rs. 2.4 lakh.
What are the Exceptions for TDS on Rent Deductions?
TDS under Section 194I is not deductible in the following circumstances:
1. No TDS on house rent or other rent payments, is deducted if the rent amount, whether due or paid, is up to Rs. 2.4 lakh.
2. Deduction of TDS on rent payment is not required under Section 194I if the tenant is an individual or HUF whose turnover does not exceed Rs. 1 crore in case of business and Rs. 50 lakh in case of profession during the financial year.
3. For the proceeds of film exhibition, the business of film exhibitor who owns a cinema theatre is composite. Neither the exhibitor rents out the theatre nor the film distributor acts as a tenant. Therefore, the business is out of the scope of TDS on rent.
4. If the payee is the government, statutory, or local authority, the person making the payment is not required to deduct TDS on rent.
TDS on Rent Returns Filing Due Date
Given below are the dates specified for filing the return for TDS on rent:
Period |
Due Date to deposit TDS on Rent |
April to June |
30th July |
July to September |
31stOctober |
October to December |
31st January |
January to March |
30th May |
Also Read: How to File TDS Return?
What is a TDS Certificate?
Every person who deducts TDS on rent is duty-bound as per Section 203 of the IT Act to furnish a certificate to the payee that acknowledges tax deduction. This certificate is known as a TDS certificate.
A TDS certificate is to be issued as Form 16A after every quarter as per the following dates:
Period |
Due Date to Issue a TDS Certificate |
April to June |
15th August |
July to September |
15th November |
October to December |
15th February |
January to March |
15th June |
Important Points Related to Rent Income Covered Under Section 194I
1) PAN number of the payee is necessary for the deduction of TDS on rent. In case the landlord or the person who transacts on his behalf does not provide PAN number, then the rate of TDS on rent is 20%.
2) A surcharge is levied on TDS on rent if the rent paid is above Rs 1 crore and a foreign company is involved.
3) TDS on rent is not deductible if the payee is a political party or a charitable trust.
FAQs About TDS on Rent
Q. Is Section 194-I related to TDS on rent applicable for using a part of any land or building?
A. Yes, it is applicable for TDS on rent as defined by the terms, ‘any land’ or ‘any building’ in the definition of ‘rent’.
Q Is TDS on rent deductible on the gross amount, including the service tax?
A. If a tenant pays a service tax, it does not partake the nature of income of the property owner. Therefore, TDS on rent is calculated on the amount of rent paid/payable, excluding the service tax.
Q. Are payments made to a hotel for booked rooms of the nature of rent?
A. Payments made for hotel accommodation taken on a regular basis are of the nature of rent and are subject to TDS on rent under Section 194-I.
Sources:
[1] https://dor.gov.in/sites/default/files/IT%20Act%20%28English%29_0.pdf
[2] https://www.incometaxindia.gov.in/Pages/faqs.aspx?k=FAQs%20on%20Tax%20Deducted%20at%20Source%20(TDS)
[3] https://www.indiabudget.gov.in/budget2017-2018/ub2017-18/bh/bh1.pdf
[4] https://icmai.in/upload/Taxation/TDS_FY_2019_2020%20.pdf
[5] https://www.incometaxindia.gov.in/pages/deadline.aspx
[6] https://www.tin-nsdl.com/faqs/tds-on-rent-of-property/TDS-FAQ.html
Disclaimer:
Save 46800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are:
- Regular Individual
- Fall under 30% income tax slab having taxable income less than Rs. 50 lakh
- Opt for Old tax regime
ARN: Aug21/Bg/18JJ
