When and How to deduct TDS on Rent – Section 194I

Provisions related to TDS on rent have been defined under section 194I of the income tax act 1961. As per section 194I, TDS on rent has to be deducted only when aggregate amount paid or to be paid or credited or to be credited exceeds Rs 1,80, 000 during the previous year.

If you presume that the Rent for the year is likely to exceed Rs 1,80, 000 then we suggest you to start deducting TDS on rent of every month under section 194I.

In case the property is jointly owned by more than one person then this limit as discussed above will be applicable to each such owner based on the proportion of their holdings.

Section 194I will be applicable to resident of India except in the case of an individual or HUF whose gross receipt or turnover from business or profession does not exceed the limit as prescribed in section 44AB.

Definition of Rent – Section 194I

TDS on rent will be deducted under section 194I only if it has been paid or payable under a lease, sub lease, tenancy or any other agreement or arrangement for the use of following assets;

  • Land
  • Building
  • Land Appurtenant to a building
  • Machinery
  • Plant
  • Equipment
  • Furniture
  • Fittings

TDS on rent will be deducted even if such assets are not owned by the person.

Rate of TDS on rent – Section 194I

Section 194I specified two rates for TDS on rent. If It’s paid for the use of plant, machinery or equipment then TDS has to be deducted at the rate of 2% and in cases like rent for land, building or both or furniture or fixture TDS rate is to be 10%.

TDS on rent as mentioned under section 194I is a flat rate. Surcharge is not applicable to TDS on rent unless the payment is to a foreign company in excess of Rs. 1 crore.

Even education cess or secondary and higher education cess is not to be charged on amount of TDS on rent.

TDS on Rent has to be deducted exclusive of service tax

Often questions are raised whether TDS on rent has to be deducted by including service tax or we have to exclude it before calculating TDS.

Before getting into service tax, please remember service tax will be charged only when total amount received or receivable by the owner from one or more services during the financial year exceeds rupees ten lakhs.

CBDT in circular No:4/2008 has clarified that TDS on rent has only to be deducted on amount of rent and not on services tax on rent. For example; if your rent amount is Rs.20 lakhs and you are charging Rs. 2,47,200 as service tax on it then TDS on rent will be on Rs. 20 lakhs (i.e. 10% on Rs. 20 lakhs), which comes to Rs. 2,00,000.

No TDS on Rent or TDS at a Lower Rate

If the owner’s income is not taxable as per the current provisions of income tax act 1961 then such person can apply to the assessing officer for lower deduction or Nil deduction of TDS on rent.

After being satisfied with the application, the assessing officer will issue a certificate for lower deduction or no deduction of TDS on rent. Owner or landlord has to produce this certificate to the deductor to deduct at a lower rate of TDS on rent as mentioned in the certificate.

TDS on Rent paid In Advance

In case where rent has been paid in advance to the landlord or owner, TDS on such rent has also to be deducted at the time of making payment. In such cases if advance rent paid for more than one financial year then it has to be allowed in proportion in which such income is offered for tax.

If security deposit paid in advance is non refundable then TDS on such amount has to be deducted while making payment as its part of the consideration paid towards rent.

It’s the responsibility of the owner to intimate their PAN to deductor. In absence of PAN TDS on rent has to be deducted @20% instead of the normal rate as applicable under section 194I.

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