Section 194I came into effect under the Finance Act, 1994. Under this section, a person (except an Individual and a HUF) paying rent is liable for TDS. The tax can be deducted at the source when the total rent amount payable or receivable is greater than a certain threshold value in a particular financial year.
The threshold limit was ₹180000 until FY 2018-19. It rose from this value to ₹240000 for 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 government bodies or agencies.
Presently, both HUF and Individuals have to pay TDS at 5% of the total rent, provided it is greater than ₹50,000.
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) -
- Building (including factory building)
- Land appurtenant to a building (including factory building)
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.