What is TDS?
TDS stands for Tax Deducted at Source. As per the income tax Act, any company or person making payment will deduct tax at source if the payment exceeds the specified threshold limits. TDS should be subtracted at the rates which are prescribed by the tax department.
The company or person who makes the payment and deducting TDS is named a deductor. Therefore the company or person receiving the payment is named the deductee. It’s the deductor’s responsibility to deduct TDS before making the payment and deposit a similar with the govt.
Also Read: How To Make TDS Payment Online
What is section 194I-TDS on rent?
Section 194I of the income tax act,1961 deals with TDS to be deducted on rent. The tax deducted at source rates is dependent on the different items chargeable to TDS. The person(not an individual or HUF) who is liable to deduct tax at source comes under this section. As updated by the finance act 2020, for the FY 2019-20 the threshold limit is 2,40,000 which was earlier 180000 until the FY 2018-19.
- This section applies only to a Resident.
- Rent paid to any government authorities, is exempt from tax.
- There’s no surcharge if the amount is within the specified limits.
So What Type Of Rent Is Taxable?
Rent: It is the payment done by a person (known as a tenant) to a landlord (owner) of the house periodically. It involves everything whether it’s lease,sub-lease, tenancy or any other type of agreement or anything which includes the use of the following things on a lease basis-
- Land or
- Building (including factory building)
- Land which is appurtenant to a building (including factory building) or
- Plant & Machinery or
- Equipment or
- Furniture or
Regardless of whether any or the entire of the above are possessed by the payee TDS to be deducted on rent applies (Clarification (I) to Sec. 194-I). Sub-lettings are also covered.
- If the landlord obtains security or advance payment for letting out his\her building to a tenant in which the deposit will be refunded when the tenant leaves the premises of the building, then this is not income and, therefore, no tax is to be deducted at the source u/s 194I.
- Moreover, advance rent (not like refundable security deposit) paid is, subject to a tax deduction. Additionally, where any such rent is credited to ‘suspense account’ or to any other account shall also be liable to TDS to be deducted on rent
History of this Section
Section 194I is introduced by the Finance Act,1994. It was started for the people who received rent from their property or by any type of equipment. Renting property is a normal source of income for people. Earlier people were accepting rent in cash to avoid tax liability, and the tenants could not claim these expenses in their income statement. Therefore, TDS to be deducted on rent payments as now a recipient can’t claim expenses without depositing TDS.
What is Covered Under Section 194I?
Income from letting out of industrial facility building
- Where an industrial facility building is let out, the lease amount is paid from business to the lessor or the proprietor of the manufacturing plant.
Lease including administration charges
- Administration charges payable to businesses are covered under the meaning of lease, as they cover instalments by whatever named called.
- TDS to be deducted on rent where building and furniture, and so on, are let out by independent people
- For the situation where a structure is let out by one individual and furniture and installations are let out by someone else, at that point the payee is needed to deduct the charge under Sec. 194I just from the lease paid/credited for the building.
- Also, if the payment is done on a quarterly basis, the TDS to be deducted on rent should also be made on a quarterly basis.
Charges in regards to a cold storeroom
For cold storages where milk, frozen yoghurt, and vegetables, are stored, the rent might be shown as charges for the utilization of the plant and not for the utilization of the structure.
Hall rents of associations
Where the income of hall rents exceeds Rs. 2,40,000 TDS to be deducted on rent.
Who is Responsible to Deduct TDS u/s 194I?
The individual (not a HUF) who is liable for paying any payment through a lease or by any other agreement is obligated to provide for TDS to be deducted on rent
According to a plan, individual/HUF (not covered under charge review) paying rent to an owner for more than Rs.50,000 each month will additionally be responsible to deduct TDS at 5%.
Why bother of Allowance of TDS?
TDS to be deducted on rent at the time of payment to the payee thereof, in cash or by the issue of a cheque or draft or by whatever other mode. This is required by law.
What is the Rate of TDS?
|S.NO.||Nature of Payment||TDS rate from 14 May 2020 until 31 March 2021||Rates of tax deduction|
|1.||Rent of plant and machinery||1.5%||2%|
|2.||Rent of land or building or furniture or fitting||7.5% (3.75% if rent exceeding Rs 50,000 / month is paid by individual/HUF who are not liable for tax audit)||10% (5% if rent exceeding Rs 50,000 / month is paid by individual/HUF who are not liable for tax audit)|
No deduction or Allowance at Lower Rate under Sec. 197
On the application given by a payee to the competent officer, if the Assessing Officer is satisfied that this is a genuine need he may allow for no deduction of or deduction at a lower rate. The Assessing Officer would give a certificate in Form 15AA allowing the same.
Under What Conditions TDS Under Section 194I Isn’t Deductible?
- The sum payable/paid is not more than Rs.2,40,000 during the relevant financial year:
No compliances or deductions are required if the amount due or paid doesn’t cross Rs 2,40,000 from FY 2019-20 onwards (earlier it was Rs.1,80,000 until FY 2018-19)
- Where owner is individual or Hindu Undivided Family: TDS to be deducted on rent isn’t needed under Sec. 194I when the rent is received by Individual or HUF not carrying on a business.
- Sharing of income of films between a film distributor and a film theatre: In the event of a film exhibitor and film distributor have a contract, and the film theatre doesn’t take the film on rent or sub-rent or a similar type it is not rental income. Therefore, no TDS to be deducted on rent.
- Where the payee is the government: An individual making payments to Government no TDS to be deducted on rent under Segment 194-I.
You should look at all the conditions properly, and if the person is responsible for TDS to be deducted on rent then he/she should comply with the said provisions of section 194I.
Outcomes of Non Payment Of TDS
Anyone who is responsible for TDS to be deducted on rent will be required to pay TDS at 1% each month from the date when TDS is deductible till the date when the TDS is deposited. A citizen who has deducted the TDS but has not deposited it yet with the authority is more liable to punishment and hence required to pay revenue at 1.5% each month from the date when the TDS is deducted to the date when the amount is deposited.
In many cases, non payment of and not depositing the TDS can lead to serious imprisonment also. Hence it is advised to every citizen of India to obey the rules and regulations and pay their tax on time without any delay.
What is section 194I?
Any person (not being an individual or HUF) paying rent to a resident person is liable to have TDS to be deducted on rent as per the provisions of section 194-I of the Income Tax Act, 1961.
What is the Exemption of TDS on Rent?
The TDS to be deducted on rent is not required to be deducted if the total amount during the Financial Year doesn’t exceed INR 2,40,000.
What occurs if TDS isn’t deducted from the lease?
The payer/occupant would be liable to pay an interest at 1% each month from the date the amount was to be deducted till the date it is actually deducted.
When was this section updated to New threshold Limit?
A new threshold limit of Rs 2,40,000 was amended through the Finance act 2020.