TDS On Rent – Section 194-I of Income Tax Act, 1961

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.

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:

• It also covers subletting of properties.
• 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.
• TDS is applicable to the non-refundable advance rent that a payee receives, as per the rate of TDS on rent.

The following table covers different rates of TDS on rent:

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:

• Payments made to hotels for official meetings (even though the hotels only charge money for catering services, not the premises).
• Payments made to get cold storage facility for the preservation of perishable items.
• Rent received on offering a factory building to a tenant.
• Service charged paid to various business centers.
• Rent paid for building and furniture.

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%

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.

TDS under Section 194I is not deductible in the following circumstances:

• 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.
• 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.
• 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.
• If the payee is the government, statutory, or local authority, the person making the payment is not required to deduct TDS on rent.

Given below are the dates specified for filing the return for TDS on rent:

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:

• 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%
• A surcharge is levied on TDS on rent if the rent paid is above Rs 1 crore and a foreign company is involved.
• TDS on rent is not deductible if the payee is a political party or a charitable trust.