TDS on Rent- Section 194-I of the Income Tax Act 1961

TDS on Rent- Applicability of Section 194-I

Any person, who is responsible for paying to a resident any income by way of rent shall deduct income-tax thereon at the specified rate.

Meaning of Rent for 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,—

(a)  land; or

(b)  building (including factory building); or

(c)  land appurtenant to a building (including factory building); or

(d)  machinery; or

(e)  plant; or

(f)  equipment; or

(g)  furniture; or

(h)  fittings,

whether or not any or all of the above are owned by the payee.


Rate of TDS on Rent under Section 194-I

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

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

Note: Section 206AA of the Indian Income-tax Act, 1961 (the Act) provides that if PAN is not furnished by the payee the TDS will be deducted at a rate of 20%.

Other Relevant Article: Section 206AB and Section 206CCA – Higher Rate of TDS/TCS for non-filers of ITR


Time of TDS Deduction

The TDS shall be deducted at the earlier of the following: –

  • At the time of credit of such income to the account of the payee OR
  • At the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.

Note: Where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.


Threshold Limit to deduct TDS

  • Where the amount of rent credited or paid or likely to be credited or paid* during the financial year to the payee does NOT exceed Rs 2,40,000.
  • TDS is required to be deducted on the whole amount if rent paid or payable is more than Rs 2,40,000 during the financial year.

* Note: Here the word “Likely to be credited or paid” signifies that if at the start of the year or at any time during the year it is probable that the Rent amount will exceed the Rs 2,40,000 during the financial year, then TDS is required to be deducted from that point of time.


No TDS will be deducted under Section 194-I in the following cases

  • Where the amount of Rent is being paid/payable by an Individual or HUF (Hindu undivided family). However, an individual or a HUF shall liable to deduct TDS under this section if his total sales, gross receipts, or turnover from the business or profession carried on by him exceed Rs 1 Crore in case of business or Rs 50 lakh in case of the profession during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid.
  • Further, no deduction shall be made under this section where the income by way of rent is credited or paid to a business trust, being a REIT (Real Estate Investment Trust), in respect of any real estate asset owned directly by such business trust.

Some Clarification:

(1.) Clarification on applicability of TDS provisions of section 194-I on lump sum lease premium paid for acquisition of long-term lease

  • CBDT has, vide Circular No.35/2016, dated 13-10- 2016, clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for the acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I. Therefore, such payments are not liable for TDS under section 194-I.

Compliance after TDS Deduction

(1.) Deposit of TDS – Due date:

The TDS deducted shall be deposited into the government account within 7 days from the end of the month in which the TDS was deducted.

(2.) Submission of TDS Returns:

For TDS on Salary, Form 24Q is used and for TDS from all payments other than Salaries Form 26Q is used.

The deductor of TDS is also required to submit the TDS return on a quarterly basis. The due date of TDS return is as follows: –

Quarter Relevant Period Due Date of TDS Return
Quarter 1 1st April to 30th June 31st July
Quarter 2 1st July to 30 the September 31st October
Quarter 3 1st October to 31st December 31st January
Quarter 4 1st January to 31st March 31st May

 

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