TDS on Rent in Income Tax – Section 194-I & Section 194-IB

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Income Tax Act, 1961, lays down provision to levy TDS on rent. Section 194-I says TDS on Rent  is required to be deducted by person (except an individual or a Hindu undivided family not subject to Tax Audit u/s 44AB)when total amount paid or payable exceeds Rs. 2.4 Lakh (w.e.f. FY 2019-20) during a year. This article will solve many doubts or questions on TDS on rent

1) What is the threshold limit of Tax deduction under section 194-I?

As per Section 194I, if aggregate amount of rent to be paid to a person, during the year exceeds Rs 2,40,000, TDS is deducted from the payment. Therefore, if rent amount in a year is less than Rs. 2,40,000, then there is no need to deduct TDS.

For example, if BabaTax pays rent of Rs 2,50,000 for its shop premises in a year, then he is require to deduct TDS on full amount of Rs 2,50,000.

2) What are the rates of TDS under section 194-I?

  1. Use of machinery or plant or equipment – 2 percent
  2. Use of any land or building, factory building or land, Appurtenant to a building (including factory building) or furniture or fittings  – 10 percent

Note: If PAN of the person is not available TDS will be deducted @20%. 

3) Who should deduct TDS on rent under section 194-I?

All persons except individual or HUF who are not liable for Income Tax Audit under section 44AB of Income Tax Act, 1961.

4) When to deduct tax ?

Tax shall be deducted earlier of
– crediting amount to the account of the person in books, or
– time of payment.

5) What does rent includes?

Rent – Rent means any payment under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—

  1. land
  2. building (including factory building)
  3. land appurtenant to a building (including factory building)
  4. machinery
  5. plant
  6. equipment
  7. furniture
  8. fittings
    Whether or not any or all of the above are owned by the payee.

6) What is the Effect of GST on TDS payments?

TDS shall be paid on the basic amount of rent. For example, if monthly rent is Rs. 1 lakh and GST is charged at the rate 18 %, hence total billed amount is Rs. 1,18,000. However, TDS will be deducted on Rs. 1 Lakh only.

7) Is TDS deducted on security deposit?

While making a contract of rent, one has to pay an amount of security deposit. Now the deduction of tax on this depends on the nature of deposit. If security deposit is non-refundable, then tax is required to be deducted. On other hand, if it is refundable, then tax is not required to be paid.

8) How to deduct tax, if building and furniture is let out by different persons?

If rent is paid to one person for building and other person for furniture and fixtures, then TDS is deducted on the rent paid to the building.

9) What should be the frequency of deduction of tax?

If rent is credited on quarterly or yearly basis, then TDS should be deducted on quarterly or yearly basis respectively. 

10) How to classify rent paid to hotel for holding seminar and providing meal as well?

Where rent is paid to hotels for usage of place and meal as well, then it is treated as contract and TDS is deducted as per section 194 C.

11) When TDS is deposited?

  1. If payment is made on behalf of Government: On same day without using any challan.
  2. In other cases: on or before 7 days from the end of the month in which the deduction is made.

New Section 194-IB of Income Tax Act

Finance Act 2017 has introduced new section 194 IB, it says, Individual or HUF Hindu Undivided family (not required to do Income Tax Audit u/s 44 AB), pays rent exceeding fifty thousand rupees for a month or part of a month during the year is required to deduct TDS @5%. Now, let’s analyse this section :

1) Who shall deduct tax u/s 194-IB?

An individual or HUF who are not liable to Tax audit under section 44 AB of Income Tax Act, 1961.

2) What is the threshold limit and rate of tax for tax deduction?

If monthly rent to be paid is more than Rs. 50,000, Tax is to be deducted at 5% on the basic amount of rent. However, if PAN of the person is not available TDS will be deducted @20%.

3) What is the Due date for payment of TDS under this section?

Due date for payment of TDS is 30 days from the end of the month in which the rent is paid.

For example, if the Mr X  has deducted TDS in the month of February. He is required to pay TDS to government on or before 30 March.

SOURCE: Baba Tax