Section 194 I – TDS on Rent

Td on rent is a quite confusing aspect, many people confuse in it. Let us see the actual Section 194 I of Tax Deduction. It says that “Rent – Any person not being an individual / HUF(Hindu Undivided Family) responsible for paying rent has to deduct tax at source at the following rates.

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(a) 2% for the use of any machinery, plant or equipment.

(b) 10% for use of any land or building(including factory building) or land appurtenant to a building(including factory building or furniture or fittings).”

Read Also: What is Current Account

What does Section 194 I imply?

• This section implies that whoever is liable to pay rent (except an individual/HUF) is also liable to deduct tax at source.
• This section is applied when the amount of rent to be paid during the financial year exceeds Rs 1,80,000/-
• This section is also imposed on individuals and/or HUFs who are subjected to tax audit are obligated to deduct tax at source.

Why was TDS u/s Section 194 I introduced?

• This section was introduced by the Finance Act of 1994.
• The Government introduced this Section because it felt the need for including an item of income under TDS Deduction should be by the way of rent.
• Other countries have a similar scheme.

What does the word “Rent” mean in Section 194 I?

• ‘Rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:

1. Land or
2. Building (including factory building) or
3. Land appurtenant to a building (including factory building) or
4. Machinery or
5. Plant or
6. Equipment or
7. Furniture or
8. Fittings

• whether or not any or all of the above are owned by the payee-Explanation (i) to Section 194-I. Sub-letting is also covered.
• If the landlord collects security or advance payment at the time of letting out a building to a tenant on the condition that the deposit will be refunded at the time of vacating the building, then such a receipt is not in the nature of income and, therefore, no tax is to be deducted at source u/s 194I.
• However, advance rent (not in the nature of refundable security deposit) paid is, subject to the tax deduction. Moreover, where any such rent is credited to ‘suspense account’ or to any other account shall also be liable to deduct tax at source.

Who is responsible for deducting TDS u/s 194 I?

• Anybody (except for an individual/HUF) liable to pay any income to the resident by way of rent is responsible for the deducting the tax at source.
• According to Budget 2017, individual/HUF (not secured under Tax Audit) paying rent to an occupant surpassing Rs 50,000 every month are additionally at risk to deduct TDS @ 5%. This amendment was enforced from 01.06.2017.
• On the off chance that the total amount of such income attributed or paid or likely to be credited or paid amid the financial year by the previously mentioned individual to the account of, or to payee surpasses Rs. 1,80,000/ –

What is the Point of Deduction of TDS?

• Tax is to be deducted at source at the time of credit of ‘income by way of rent’ to the account of the payee or at the time of payment thereof in money or by the issue of a cheque or draft or by another mode, whichever is prior.

Under what conditions TDS u/s 194I isn’t deductible?

• The sum payable/paid not surpassing Rs. 1,80,000 amid the financial year: No tax from the sum payable in regard of rent is deductible where the amount of such rent attributed or paid or liable to be credited or paid amid the financial year to the payee or landlord or lessee does not surpass Rs. 1,80,000
• Where occupant is individual or Hindu Undivided Family: Deduction isn’t required under Sec. 194I if the sum is paid or payable by an individual or Hindu Undivided Family. In the event that :
  1. the individual/HUF isn’t to carrying any business/profession or
  2. individual/HUF not responsible for tax audit in the preceding year
• Sharing or proceeds of film presentation between a film distributor and a film exhibitor owning a film theater: Representations have been received from different quarters with respect to the applicability of the provisions of Sec. 194-I of the Income Tax Act to the sharing of the returns of film show between film wholesaler and film exhibitor owning a film theatre. The matter has been inspected by the Board and the Board is of the view that the provisions of Sec.194-I would not be pulled in to such payment in light of the fact that: the exhibitor does not let out the film theatre to the distributor. Generally, the share of the exhibitor is because of composite services; and The distributor does not take film theatre on rent or sub-rent or tenancy or under an agreement of a similar nature.
• Where the payee is the Government at the office: Under the provisions of Sec. 196, no tax is to be deducted at source from any amount which is payable to the government. The matter concerning the statutory authorities and the local authorities alluded to above, has been inspected by the Board. Sec. 190. What’s more, it accommodates deduction of income tax at source as one of the methods of gathering of income tax with the deference of pay or an income. This is despite that the regular appraisal in regard to such an income is to be made in a later evaluation year. The salary of an authority comprised in India by or under any law authorized either to deal with and fulfilling the requirement for housing accommodation or to plan, advancement or enhancement of urban areas, towns and villages are exempt from income tax under Sec. 10(20A). Likewise, the income of a local authority which is chargeable under the ‘Income from house property’ or ‘Income from other sources’, is exempted from Income-tax under Sec.10(20). There is no other condition determined in these two clauses of Sec.10 which is essential to be fulfilled to benefit of the income-tax exemption. There is no prerequisite to deduct income-tax at source on income by a way of ‘rent’ if the payee is the legislative or governmental agency. In the instance of the local authorities and the statutory authorities, there will be no necessity to deduct income-tax at source from pay/income by a way of rent if the individual in charge of paying it is fulfilled about his tax-exempt status under clause (20) or (20A) of Sec.10 based on certificate with this impact given by the said authorities.

What is the time limit on depositing TDS?

• Where the payment is made by or on behalf of the Government around the same time (without utilizing any challan form)
• Where the payment is made in some other case then the Government-On or before 7 days from the end of the month in which deduction is made, where tax is paid accompanied by an Income-tax challan: 1. In the event that the sum is credited or paid in March-On or before April 30th.  2. In some other case-On or before 7 days from the month’s end in which the deduction is made.

This article aims to cover all aspects of Section 194 I – TDS on Rent.