The Finance Act 1994 was the first to introduce TDS on Rent or Section 194I to India. It stated that any individual or Hindu undivided family member who received rent as income was liable to pay taxes to the Indian government. Any service fees collected by the business on top of rent are counted. If the tenant pays rent yearly, the TDS can also be filed yearly, and deductions are made based on actual payments received by the landlord or credit.
In cold storage facilities where a property is rented for storing goods (such as fruits, vegetables, meats, and perishables) and not buildings, hotels that provide catering services can pay TDS if the premises are rented out to individuals. The enterprise's owner has to pay TDS if a hotel rents out rooms. There are exceptions when TDS doesn't have to be paid and a lot more to cover.
Did You Know? As per Section 194-I, a company paying rent above ₹2.4 lakh to any resident person should deduct tax at source at 10% on rent paid for land or building.
What is Section 194I?
Section 194I of the Income Tax Act requires all individuals to pay income tax on earnings received as rent on properties, equipment, machinery, furnishings, fittings, land, and building leases. It refers to TDS deducted as a form of tenancy, irrespective of whether the payee owns those assets. TDS on rent is deducted at the source, and the law applies not only in India but also in other countries.
When is 194I TDS Not Applicable for Deductions?
In the following circumstances, individuals are not required to pay TDS tax deductions for Section 194I:
- Suppose their annual earnings do not exceed ₹2.4 lacs during the financial year. Taxes do not have to be paid in such cases. There are no threshold limits applied to these exemptions.
- Suppose the tenant is an individual or belongs to an undivided Hindu family. Tax is not applicable if the HUF is not conducting any auditable business under the Income Tax Act law.
- If the payee is a government official or agency, the individual does not have to pay the TDS rent rate. The same applies to statutory and local authorities, both of whom are not taxed liable.
- Any proceeds made by a movie theatre are shared between a film distributor and a film exhibitor for filming purposes. The sharing of the venue is on account of composite services, and the distributor does not rent the cinema buildings under lease, sub-lease, or tenancy agreements. The payments made in such cases are not rental by nature and hence, not TDS deductible.
Effect of Not Filing TDS Under Section 194I: Earnings on Home Rentals
Here is what happens if an individual does not pay TDS on the rent of a property:
- The payee is liable to be charged an interest of 1% per month from when they missed the TDS deduction deadline.
- If a taxpayer has charged tax on rentals but hasn't deposited it with the Government, the interest rate charged to them as a penalty is 1.5% per month. There could be other penal consequences for TDS defaults as well.
Terms and Conditions for TDS Rent Deductions
- The PAN Card of the landlord is required for filing TDS on rent for FY 2021-22
- TDS is not deducted from refundable deposits, such as security deposits when the landlord rents the premises to a tenant. However, TDS is applicable to non-refundable deposits like token fees, etc.
- For hotel accommodations where guests check in and out regularly, TDS has to be deducted daily.
- For any hall rented by an association, TDS will be deducted only if the rent is higher than ₹1.8 lacs.
- Service tax is factored into TDS deduction calculations only if the total amount earned during the financial year crosses ₹10 lacs. It includes Cess, but it's important to note that service tax deductions are calculated with the actual rent and not only on the services.
How Do I File Section 194I TDS?
You need to pay TDS by the 7th of the subsequent month, and for any payments made beyond March, the payment needs to be made by April 30th. For all rent TDS payments related to Section 194I, a challan cum statement has to be filled up and submitted. Individuals will require Form 26QC within 30 days from the date TDS has been deducted.
The Indian Government accepts various modes of payment for TDS deductions - cash, cheque, demand draft, and card. If an individual does not have a PAN card, the deduction rate is normally 20%. However, if a PAN number is presented, the TDS charged is only 5%. The time of tax deduction is usually earlier than the time of credit of rent for the last month of the previous year or if the property gets vacated during the financial year.
There is no need to show TAN when filing TDS; landlords or property owners do not have to pay TDS if the rent does not exceed ₹50,000 per month.
To make the TDS payment online, take the following steps:
1. Visit the TIN NSDL official website
2. Select a Challan and Form 26QC will open up
3. Fill in all the details required and proceed to payment
4. Submit your details, select your preferred mode of payment, and finish. You have now successfully completed your 194I TDS filing.
Difference Between Section 194I, Section 194B, and Section 271H
Those liable to not audit under section 44AB and who pay rent to residents are required to make TDS payments under section 194B. Under section 271H, the assessing officer can levy a penalty of up to ₹10,000 to ₹1 lakh if TDS is not filed within one year from the due date. This applies in the event of late filing, where no interest is paid to the government.
Section 194I of the Income Tax Act in India is constantly changing and has been updated since its inception. There is a special amendment introduced in the 2016 budget. This amendment provides that nil tax is applicable if the applicant's sole source of income is rent, with no other sources. In this case, the TDS charged would be zero. Rent received from leasing or renting properties is considered an additional source of income by the government, which is why it is subject to TDS deductions.
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