Section 194I of the Income Tax Act concerns tax deducted at source (TDS) on rent. The provisions of this particular section define how TDS on rent should be treated. The rent paid on a property is subject to TDS since it is an additional income earned by counter party such as businessmen, salaried people, etc.
Let’s dive in to gain a detailed insight of section 194I of the Income Tax Act.
Section 194I came into effect under the Finance Act, 1994. Under this section, any person (except an Individual and a HUF) paying rent to a resident is liable for TDS. The tax can be deducted at the source when the total rent amount payable is greater than a certain threshold limit in a particular financial year.
The threshold limit was ₹180000 until FY 2018-19. It rose from this value to ₹240000 from FY 2019-20. Moreover, there exists no surcharge unless the amount is higher than ₹1 crore. Besides this, note that TDS under Section 194I is not applicable for the rent payable to to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust.
To develop a better understanding, one must know what comes under rent according to this section. Rent comprises payments under sub-lease, lease, tenancy, or any other arrangement or agreement for any of the following uses (either together or separately) -
One should note that the above statement is applicable, notwithstanding if the payee is the sole owner of all or any of the above-mentioned entities. Also, sub-letting gets covered here.
Following are various payments included under Section 194I -
When a factory building is let out, the rent received is income from business in the hands of the factory’s owner or lessor. In some circumstances, it is income from house property in the hands of the lessor. But business income in the lessor’s hands and payment for which they will necessarily be paying advance tax and finally returning the rental income is also subjected to TDS.
This turns out to be an unnecessary burden for both the tax administrator and taxpayer because tax collection would take place as TDS from the lessor without delay.
Tax deduction is not mandatorily applicable on a monthly basis under Section 194I.
For instance, if rent is credited quarterly, TDS deduction will take place on a quarterly basis. Conversely, when individuals receive rent yearly, the deduction will also take place on the actual credit payment once a year.
Service charges payable to business centres also fall under ‘rent’. It is because these cover payments are called by whatever names.
Where furniture and fixtures are let out by one person and a building is let out by another person, the payee needs to deduct tax under this section only from the rent credited or paid for the hire of the building.
CBDT Circular No.1/2008 dated 10.1.2008 provides clarification regarding applicability of provisions of section 194-I to payments made by the customers on account of cooling charges to the cold storage owners.
The main function of the cold storage is to preserve perishable goods by means of a mechanical process, and storage of such goods is only incidental in nature. The customer is also not given any right to use any demarcated space/place or the machinery of the cold store and thus does not become a tenant.
Therefore, the provisions of 194-I are not applicable to the cooling charges paid by the customers of the cold storage. However, since the arrangement between the customers and cold storage owners are basically contractual in nature, the provision of section 194C will be applicable to the amounts paid as cooling charges by the customers of the cold storage
The association is assessed as an association of persons and not as HUF or an individual. Therefore, the obligation of tax deduction remains there, considering payment for the hall usage is more than ₹240000 from FY 2019-20 onwards.
Provisions of this section are not applicable for cases where hotels do not charge for usage of premises but for meal/catering only. However, it would be applicable for the catering part.
TDS is applicable when the payee credits ‘income by way of rent’ to the landlord’s account. Note that if you receive rent through cheque, draft or cash, this tax will be deducted during the time of payment.
The table given below provides an insight into the 194I rent TDS rate based on the property type.
This includes the rates applicable under 194I (a) and 194I (b) TDS on rent.
|
Payment Type |
TDS Rate For Individuals/Company |
TDS Rate For Invalid or No PAN |
|
Rent on building, furniture, land, or fittings |
10% |
20% |
|
Rent paid on machinery and plant |
2% |
20% |
Here are some cases when TDS on rent under section 194I does not get deducted -
Given below is the 194I TDS limit within which individuals need to deposit tax -
Entities must keep in mind all above-mentioned aspects of section 194I of the Income Tax Act. It will be helpful for them to account for TDS on rent properly. Furthermore, it will allow them in streamlining the payment procedure and also claim a refund conveniently.
Please try one more time!
Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
Continue with {{twoWheelerCtrl.lastVisitedData.lastVisitedUrl.indexOf('DigitPaymentGateway/payments')
!== -1 ? 'payment
completion': 'previous
choice'}}
{{healthCtrl.lastVisitedData.dropOffPolicyHolderData ? 'Complete your purchase': healthCtrl.lastVisitedData.lastVisitedUrl.indexOf('plans-page')
!== -1 ? 'Continue Browsing' : 'Continue with your previous choice'}}
