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Deduction In Respect of Rent Paid Sec 80GG: of Income Tax Act, 1961 is a special provision that provides tax relief to individuals who do not make use of house rent allowance. However, in order to claim the deductions for rent paid under Section 80GG one will have to stay in the rented home. In addition to this, the individual’s employee shouldn’t include the HRA allowance in his/her monthly salary. On this page, let’s learn everything about deductions for rent paid under Section 80GG in detail. Read on to find out more.

• Section 80GG Eligibility
• How Do You Calculate 80GG?
• Section 80GG Maximum Limit
• Form 10BA for Claiming Deductions for Rent Paid
• Can Property Owners Claim Deductions under Section 80GG?
• FAQs on Deductions For Rent Paid Under Section 80GG

Section 80GG Eligibility

Professionals who are salaried or self-employed are eligible for the Section 80GG deduction. In addition to this, the officials of the Income Tax Department have listed a few more prerequisites which are listed below:

• These tax benefits are only available to individuals and Hindu Undivided Families (HUF). Businesses and other businesses are not eligible for the same tax concessions when paying rent in a particular fiscal year.
• This benefit is available to salaried professionals as well as self-employed individuals.
• If one has no income, then he/she cannot enjoy the tax deductions under Section 80GG.
• The Income Tax Act’s Section 80GG is meant for people who do not receive a house rent allowance from their employers. If a person’s salary includes an HRA payment, he or she is eligible to collect housing rent income tax rebates.
• To claim tax benefits under Section 80GG of the Income Tax Act, the taxpayer must produce a copy of the homeowner’s PAN card if the annual rent exceeds Rs.1 lakh. Keep in mind that this PAN card must belong to the owner of the property that you are renting.
• The HRA shouldn’t be claimed at any point during the financial year for which the tax advantage under Section 80GG has been claimed. This is more important for those who have changed jobs in recent years. Even if one does not receive HRA for the majority of the year, receiving it for a month disqualifies one from claiming this yearly respite.
• Those who want to take advantage of this tax deduction must first submit a completed Form 10BA to the government. This form certifies that the person filling it out does not receive any advantage from a self-occupied property in any area.

How Do You Calculate 80GG?

Section 80GG Calculation: This section’s tax deductions are based on Tax Rule 2A. The least amount from the following calculations is considered non-taxable income under Section 10(13A).

• 5000 rupees per month or Rs.60000 per year
• The amount of yearly rent minus 10% of the taxpayer’s adjusted total income.
• A year’s worth of adjusted total income is equal to 25% of the total income.

Please note that after computing the three values for an individual, only the lowest of the three is used to determine the Section 80GG deduction.

Two distinct examples of tax deductions based on varied income and rent payments are explained in the table below.

From the table, In the case of Example A is eligible for a bigger tax deduction under Section 80GG, owing to the fact that his or her adjusted total income is higher than example B’s.

Furthermore, because the quantity in this calculation is lower than the other two clauses, the provision that considers 25% of the ATI as a tax discount applies in the first situation.

In the case of Example B, however, yearly rent less 10% of ATI yields a lesser quantum than the other calculations. As a result, for example, B, is the relevant tax deduction.

Section 80GG Maximum Limit

Section 80TTA only allows for a maximum deduction of Rs 10,000. If your interest income from the foregoing sources is less than Rs 10,000, you can deduct the entire interest income. However, if your interest income exceeds Rs 10,000, your deduction will be limited to that amount.

Form 10BA for Claiming Deductions for Rent Paid

If you want to take advantage of Section 80GG tax benefits, you’ll need to fill out Form 10BA. These forms are widely available from a variety of sources. Also one can reach out to their HR department to access the form. Also one can download Form 10BA from the income tax department official website. The From 10BA will look like the following image:

The list of details one must fill out in Form 10BA for claiming the deduction in respect of rent paid are listed below:

• Complete address, including postal code
• The assessee’s name and PAN
• Payment method
• Tenure of residency in months
• Amount of rent
• Name and address of the property owner
• The assessee, his/her spouse, and any minor children do not own any other residential property, according to the declaration.
• If the rent exceeds Rs.1 lakh in a particular financial year, the rented property’s owner’s PAN number is required.

Can Property Owners Claim Deductions under Section 80GG?

Property owners can claim the deductions for rent paid only if they meet the following criteria:

1. They must be paying rent on a home they currently reside.
2. They should not have a home or properties in the same city or location as their workplace. Section 80GG does not apply to their yearly income taxes if they own a home in the city but choose to reside in a rented flat.

FAQs on Deductions For Rent Paid Under Section 80GG

Question 1.
Individuals residing with parents can claim the deductions under section 80GG?

Answer:
Section 80GG benefits are also available to people who live with their parents in a home owned by their parents. This would require signing a rental agreement with one’s parents. Furthermore, when the parents submit their annual taxes, the sum indicated as rent will be taxed.

Question 2.
Can NRIs claim deduction u/s 80GG?

Answer:
Yes, NRIs can claim the deductions under Section 80GG of the Income Tax Act. But for that, one will have to rent a property in India.

Question 3.
Can pensioners claim 80GG deduction?

Answer:
Yes, Pensioners can claim the 80GG deduction, since they don’t receive the HRA.

Income Tax Rebate under Section 87A for FY 2019-20, AY 2020-21: A rebate under Section 87A is a kind of income tax provision which helps individuals to reduce their income tax liability. But the individuals who wish to claim the tax rebate under section 87A must make sure that their income should be less than 5 Lakhs. This article helps you to understand everything about how is Section 87A rebate calculated. Read on to find out more.

• Eligibility To Claim Rebate u/s 87A FY 2020-21 (AY 2021-22)
• How To Claim Income Tax Rebate?
• Highlights of Section 87A of Income Tax Act
• Section 87A Rebate Limit for All Financial Years
• FAQs on Income Tax Rebate under Section 87A

Eligibility To Claim Rebate u/s 87A FY 2020-21 (AY 2021-22)

Let’s understand for who does the rebate under Section 87A is applicable:

• For FY 2020-21 / AY 2021-22, the 87A threshold limit is Rs 12,500. This means that if the total tax payable is less than Rs 12,500, the rebate under section 87A will be that amount. Before applying the Education Cess, this rebate is applied to the total tax (4%).
• Individuals with net taxable income of up to Rs 5 lakhs are eligible for a tax relief under section 87A.
  • Consider the following scenario: Let’s say your annual salary is Rs 6,50,000 and you claim Rs 1,50,000 under section 80C. (available under old tax regime). In your situation, your total net income is Rs 5,00,000, making you eligible for a tax credit of Rs 12,500.
• The tax rebate under section 87A is limited to a maximum of Rs 12,500. If the tax payable is less than Rs 12,500, say Rs 10,000, the tax rebate will be limited to that amount, i.e. Rs 10,000.
• To get at the net taxable income, the Tax Assessee must first add all incomes, such as salary, house income, capital gains, business or profession revenue, and income from other sources, and then deduct the appropriate tax deduction amounts u/s 80C to 80U and under section 24(b) (Home Loan Interest). (If you choose the new tax regime, you will be unable to claim income tax deductions under sections 80c, 80d, and so on.)
• If your net taxable income is less than Rs 5 lakhs, you’ll be eligible for an income tax refund of Rs 12,500, which should be deducted from your total income tax liability (as per the income tax slab rates applicable under old or new tax regimes).

How To Claim Income Tax Rebate?

The rebate can be claimed by the taxpayer before the education cess is added to the tax liability when filing tax returns.

The detailed steps to claim income tax rebate under section 87A are listed below:

1. Calculation of Gross Income: First add all your earnings which includes salary, capital gains, house rent, and other sources of income.
2. Net Taxable Income Finding: Apply Section 80 deductions to your gross income if it’s applicable
3. After subtracting the tax deductions, calculate your total income.
4. Declare your gross income and tax deductions on an income tax return.

If your net taxable income is less than 5 Lakhs, then you can claim the tax rebate 87A.

Highlights of Section 87A of Income Tax Act

The important points regarding Rebate under Section 87A are given below:

• This section allows you to claim a deduction of either 100% of your income tax liability or Rs. 2,500. (whichever is lower).
• The rebate is applied to the total tax amount before the 4% educational cess is added.
• Individuals are the only ones who are eligible for a rebate under this clause.
  This rebate is not available to corporations, firms, or Hindu Undivided Families.
• Senior citizens are eligible for a rebate (individuals above the age of 60 years and below 80 years)
• Section 87A does not provide a rebate to super senior citizens (those who are over the age of 80).

Section 87A Rebate Limit for All Financial Years

The rebate limit for all the financial years are tabulated below:

FAQ’s on Income Tax Rebate under Section 87A

Question 1.
Is rebate applicable to senior citizens?

Answer:
Senior citizens between the age of 60 years and below the age of 80 years can claim the rebate.

Question 2.
What is the rebate under section 87A for F.Y 2021-22 and who can claim it?

Answer:
A person who is a resident of India and has a total income of less than Rs. 5,00,000 is eligible for a rebate under section 87A. A deduction from the tax liability is offered as a rebate under section 87A. The lower of 100 % liability or Rs. 12,500 will be the amount of the rebate under section 87A. In other words, if the tax due exceeds Rs. 12,500, a rebate will be granted up to Rs. 12,500 only, and if the total income (i.e. taxable income) exceeds Rs. 5,000,000, no rebate will be available.

Question 3.
Can NRIs claim the income tax rebate?

Answer:
No, NRIs cannot claim the income tax rebate under section 87A.

Section 80E for Interest on Education Loan: A portion of our hard-earned money goes to the government in the form of income tax and every taxpayer will practically think to lessen the income tax.  While it is impossible to avoid paying taxes, individuals can make use of tax deductions to reduce the tax amount. There are several sections under the income tax department that allows deductions for various schemes. Of all the deductions, Section 80E is specially allocated to provide tax deductions for educational loans. This section 80E is only available for the loan’s interest component and any individual can claim this deduction only after the loan has started to be repaid.

• What is Section 80E of Income Tax Act?
• Section 80E With Example
• Who is Eligible for 80E Deduction?
• What is the Maximum Limit under Section 80E?
• Period of Deduction on Education Loan
• How do I Claim Deductions under Section 80E?
• Tax Benefits of Education Loan Under Section 80E
• FAQs on Section 80E Income Tax Deduction

What is Section 80E of Income Tax Act?

The Income Tax Act’s Section 80E allows for a tax deduction on educational loans. Such loans can be used for the further education of a taxpayer’s spouse or children, with the interest component of the loan being the only part of the loan that can be deducted. This essentially means that any interest paid to repay student loans is deductible under Section 80E.

Only when an individual has begun repaying the loan can he or she claim a tax deduction for interest paid, and only during the years in which interest is paid on the educational loan.

Section 80E With Example

For example, if your education loan’s total EMI is Rs. 12,000, and the main component is Rs. 8,000 and the interest component is Rs. 4,000, you can only claim Rs. 4,000 every month. As a result, you can claim Rs. 48,000 as a tax deduction for the entire EMI paid on the loan for the financial year.

Who is Eligible for 80E Deduction?

The officials of income tax have specified the eligibility criteria specifying the individuals who can claim this deduction. Any individual meeting the following conditions can claim the income tax deductions under Section 80E:

1. Only individuals are eligible for tax deductions under this section.
2. Only the interest component of a specific educational loan is eligible for a deduction.
3. Tax deductions are only available for loans taken out from recognised financial institutions and charitable organisations.
4. The loan should be used only for higher education purposes.
5. The deduction is only available for 8 years, beginning with the first year of repayment.
6. One can claim the deductions, only if he/she takes a loan on their name.

The following people are not eligible to claim the Section 80E deductions under Income Tax Act:

• This section does not apply to loans if the individual borrows loans from friends or relatives.
• Under this section, Hindu undivided families and businesses are not eligible for deductions.

What is the Maximum Limit under Section 80E?

The overall interest portion of the EMI paid during the financial year is deducted. There is no maximum limit on the amount that can be deducted. However one will have to obtain a certificate from the loan lent organisation. The main and interest portions of the education loan you paid during the financial year should be separated on such a certificate.

The whole amount of interest paid will be deducted. The principal repayment is not eligible for a tax credit.

Period of Deduction on Education Loan

The interest on a loan is deducted starting in the year in which you begin repaying the loan. It is only available for 8 years, beginning the year you begin repaying the loan or until the interest is fully returned, whichever comes first.

This means that if the loan is repaid in full in 5 years, the tax benefit will only be available for 5 years, not 8. It’s also worth noting that if your loan term exceeds 8 years, you won’t be able to deduct the interest you paid after that. As a result, it is generally desirable to repay an education debt within eight years.

How do I Claim Deductions under Section 80E?

While filling out the ITR-1 form, the individual must declare his/her income information. Apart from filing the income information, one can claim the income tax deductions under sections 80C to 80U of the income tax act. While claiming the deductions, one can mention the deductions under Section 80E.

Tax Benefits of Education Loan Under Section 80E

Section 80E of the Income Tax Act of 1961 allows anyone who has applied for a loan for higher education to benefit from tax savings. Even if a person has taken the maximum allowed deduction of INR 1,50,000 under Section 80C, they can still take advantage of Section 80E.

Note that Section 80C allows for a deduction for education fees paid, whereas Section 80E allows for a deduction for interest on a loan accepted for higher education.

FAQs on Section 80E Income Tax Deduction

Question 1.
Is interest on education loans tax deductible?

Answer:
Yes, under Section 80E of the income tax act, the interest paid on an education loan is deductible.

Question 2.
Who can claim deduction u/s 80E?

Answer:
Depending on who repays the education loan first, the tax benefit can be claimed by either the parent or the child (student).

Question 3.
When a loan is taken for the education of a child the father is entitled to deduction under section?

Answer:
The benefit is available to both parents and children, meaning that whoever pays the education loan, whether parent or child, can begin claiming this deduction.

Section 44AB of Income Tax Act, 1961: Individuals who meet certain criteria and must have their accounts audited by a Chartered Accountant are covered by Section 44AB of the Income Tax Act. This requires the submission of a specific set of forms. The audit of certain individuals’ accounts is governed by Section 44AB of the Income Tax Act.

In other words, if some persons meet the Section 44AB requirements, they must have their accounts audited by a certified Chartered Accountant. This practice is carried out exclusively to aid the Assessing Officer in the assessment and computation of the individual’s total taxable income. In this article, let’s understand the audit of speculation business for shares, futures and options trading. Read on to find out more.

• When Tax Audit is Applicable?
• Who is Liable for Audit under Section 44AB?
• Audit of Speculation Business-Shares, Futures and Options Trading
• Filing Of Income Tax Audit Report Under Section 44AB
• Non-compliance of Tax Audit
• FAQ’s on Income Tax Audit Report Under Section 44AB

When Tax Audit is Applicable?

The tax audit under Section 44AB is applicable under the following situations:

• Individuals whose overall income or turnover for the financial year exceeds the taxable limit allowed, regardless of prior financial year turnover
• Individuals with a personal income that is less than the taxable limit but company income that is greater than the taxable limit
• In exceptional circumstances where the individual’s income does not exceed the taxable limit yet the Assessing Officer requests that the individual’s accounts be audited. The Assessing Officer can only do this by issuing an order under Section 142(2A) of the Income Tax Act.

Who is Liable for Audit under Section 44AB?

Any individual meeting the following criteria is liable to audit their accounts under Section 44AB:

Any person or individual carrying on a business:

• If an individual or person carrying on a business earns a total income or turnover of more than Rs 1 crore via the operation of the business in any year prior to the relevant assessment year, he or she would be compelled to have an income tax audit conducted on his or her books.
• If an individual or person carrying on a business earns profits or gains as any of the individuals listed under Section 44AE, Section 44BB, or Section 44BBB, and he or she has stated that his or her income is below the taxable limit prescribed for profits or gains acquired through business, he or she will be subject to an income tax audit.
• If an individual or person carrying on a business earns profits or gains through the operation of the business as any of the people listed in Section 44AD, and he or she has stated that his or her income is below the taxable limit for profits or gains acquired through business, but has income that exceeds the tax-free limit, he or she will be reassessed.

Any person or individual carrying on a profession:

If the individual or person in issue receives gross income or receipts in excess of Rs 25 lakhs from his or her profession in any year prior to the relevant assessment year, he or she would be compelled to have an income tax audit performed on their accounts.

Any person or individual mentioned under other sections of the Income Tax Act:

Section 44AB requires any person or individual who falls within the following sections of the Income Tax Act to have their accounts audited. These are the sections:

• Section 44AD
• Section 44AE
• Section 44AF
• Section 44BB
• Section 44BBB

Audit of Speculation Business-Shares, Futures and Options Trading

When a company’s turnover exceeds Rs. 1 crore, an audit under section 44AB is necessary.
However, in the case of speculation, stock trading, and futures/options, turnover is calculated as follows.

1. Speculation Business: The turnover is calculated as the sum of both positive and negative differences.
2. Intraday stock trading: The turnover is calculated as the sum of both positive and negative changes.
3. Delivery-based stock trading: The higher the sale or purchase price, the higher the turnover.
4. Futures: The turnover is calculated as the sum of both positive and negative differences.
5. Options: The premium received on option sales is also included in turnover.

Filing Of Income Tax Audit Report Under Section 44AB

Individuals who are required to have their accounts audited under Section 44AB must file their income tax audit report under Section 44AB along with their income tax returns by September 30th of the assessment year for the previous year. These persons must e-file their income tax audit reports along with their income tax filings and supply all necessary information.

Non-compliance of Tax Audit

A penalty is imposed on a taxpayer who is required to have a tax audit performed but fails to do so.
The following are the penalties that may be imposed on him or her. In the following instances, the tax auditor must provide the report in a correct format, either in Form 3CA or Form 3CB:

0.5 percent of overall revenue (gross receipts) or turnover

Thus you must follow the provisions of section 44AB of the Income Tax Act 1961 if you are a taxpayer. This clause states that after performing an audit of your books of accounts, all taxpayers must get an audit report. This is to accurately portray the taxpayers’ income-related activities, deductions, and taxes.

FAQ’s on Income Tax Audit Report Under Section 44AB

Question 1.
Who is liable for audit under section 44AB?

Answer:
If an individual is in business and his/her total sales, turnover, or gross receipts (as the case may be) in a given year exceed or exceed Rs. 1 crore is liable to audit under section 44AB.

Question 2.
What is the penalty for not getting the accounts audited as required by section 44AB?

Answer:
Yes, If the audit is not completed and the report is not submitted on time (before or on September 30), a penalty of 0.5 percent of the turnover, up to Rs. 1.5 lakh, must be paid.

Question 3.
Is audit compulsory for proprietorship?

Answer:
If a proprietor runs a business with a sales turnover of more than one crore rupees, a tax audit is compulsory.

Question 4.
Is tax audit mandatory in case of loss?

Answer:
There has been a loss and the total taxable income is below the threshold limit (2.5 lakh for non-senior citizen and 3 lakh for senior citizen), then the tax audit is not mandatory.

Expenses Disallowed Under Section 40A: There are several expenses that are not allowed while calculating profit and earnings from a business or profession. This means that the income tax officials do not allow the advantage of such expenditures, and assessees must pay taxes on them by adding them back to net earnings.

• Reason for Disallowance Under Section 40(A)(ii)
• Expenses Not Deductible Under Section 40A
• Disallowance Under Section 40(A)(i) of Income Tax Act
• Disallowance Under Section 40(A)(iA) of Income Tax Act
• Section 40(A)(ii) of Income Tax Act
• Disallowance Under Section 40(A)(iib) of Income Tax Act
• Disallowance Under Section 40(A)(iii) of the Income Tax Act
• Section 40A: Expenditures Disallowed for Payment in Cash
• FAQ’s on Expenses Disallowed Under Section 40A

Reason for Disallowance Under Section 40(A)(ii)

Any expenditure may be disallowed for one of two reasons:

1. While making the payment, the tax amount that must be deducted on certain expenditures is not deducted.
2. The expenditure has nothing to do with the operation of such a business or profession.

Expenses Not Deductible Under Section 40A

The list of expenses that are not deductible under Section 40A are explained below:

Disallowance Under Section 40(A)(i) of Income Tax Act

If payment is paid to Non-Resident Disallowance u/s 40(a)(i), non-compliance with TDS provisions would be attracted.

• Interest, royalties, fees for technical services, or any other sum chargeable under the Income Tax Act is paid or payable. Under the I.T. Act, the aforementioned sums must be taxable in the hands of the beneficiary.
• The aforementioned sum has been paid or is due:
  • To a non-resident or a foreign entity outside of India
  • To a non-resident or a foreign firm in India
• The aforementioned payments are tax-deductible at the source.
• And one of the defaults listed below occurs.
  • Tax has not been deducted at source, or
  • Tax has been deducted but not paid on or before the due date provided in section 139 (1).

Disallowance Under Section 40(A)(iA) of Income Tax Act

Non-Compliance of provisions of TDS where payment is made to a Resident. Disallowance u/s 40(a)(ia) shall be attracted if an assessee:

• A. fails to deduct TDS;
• B. fails to pay TDS after deduction, he will be held to be an assessee in default under sections 220 and 221. As a result, he/she must pay the following:
  • Section 221 penalty, which can be as much as the amount of TDS not deducted/not paid.
  • Interest u/s 220 @ 1% p.m. from the date the tax was deductible/payable until the date the order u/s 201 was passed.

Section 40(A)(ii) of Income Tax Act

• A. Income tax paid under the Income Tax Act of India of 1961 is not deductible.
• B. Tax paid in a foreign country for which relief or credit is provided under Section 90 of the Internal Revenue Code.
• C. Tax paid in a foreign country with which India does not have a Double Taxation Avoidance Agreement (DTAA), but which is allowable as a deduction from Indian income tax payable u/s 91.
• D. Service tax is deductible as a business expense under section 37(1), subject to section 43B.

Disallowance Under Section 40(A)(iib) of Income Tax Act

Fee or charges paid by State Government Undertaking

• A. Any money paid as a royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge, by whatever name called, that is levied exclusively on
• B. any amount appropriated, directly or indirectly, by the State Government from a state government undertaking.

Disallowance Under Section 40(A)(iii) of the Income Tax Act

TDS on salary payable outside India or to a Non-Resident

• A. Salary paid outside India or to a Non-Resident Indian is deductible only if TDS has been deducted and TDS has been paid within the time limits set out in the Income Tax Act.
• B. The salary paid outside India or to a Non-Resident in India would not be accepted as a deduction if TDS is deposited late by even one day.
• C. If TDS is not deducted but paid out of pocket by the assessee, then salary paid outside India or to a Non-Resident in India is not allowable as a deduction.

Section 40A: Expenditures Disallowed for Payment in Cash

There are some transactions in which the assesses pay for services or commodities in cash rather than via cheque or bank transfer, for example. The expenditure is forbidden in all such circumstances where the payment exceeds Rs. 20,000. Such payments can be made using an account payee cheque, account payee bank draught, or bank transfer, among other options.

Although the provision prohibits payments in cash for costs above Rs. 20,000, there are several circumstances in which payments in cash in excess of Rs. 20,000 are permitted, and allowances are provided for such expenditures. Rule 6DD requires such a list of expenses.

Some of the examples are:

• Banks, financial institutions, and other financial entities get paid.
• Government payment
• Book adjustments were used to make the payment.
• Payment for agricultural products purchased
• Payments offered to cottage industries that produce without the use of electricity.
• Payment to a person living in a village without access to a bank
• Payment of post-employment benefits
  (Up to 50,000 rupees)
• Salary is paid once TDS has been deducted correctly.
• On a day when banks are closed, a payment is made.
• The currency trader makes the payment.

Other defaults include non-deduction of securities transaction tax, fringe benefits tax, wealth tax for earlier years and income tax, and provident fund payments without tax deduction. The expenditure is disallowed for the assessee in such circumstances where the default is as described above.

However, all payments on which an amount is required to be deducted and lodged with the government but is not deducted or stays underpaid are subject to disallowance. Although the allowance for the spending can be received at a later point when the money is deducted or deposited.

FAQ’s on Expenses Disallowed Under Section 40A

Question 1.
What is Section 40A (3)(b)?

Answer:
Section 40A (3)(b) states that considering a payment as profits and gains of a business if the expenditure was incurred in one assessment year and payment was received in the following year in excess of 10,000.

Question 2.
What is Rule 6DD?

Answer:
The income tax regulation 6DD, which governs scenarios and circumstances in which a payment or series of payments totalling more than Rs 20,000 may be paid to a person in a single day other than via account payee cheque or account payee cheque, has been revised.

Question 3.
What is Section 40A(2) of Income Tax Act?

Answer:
Section 40A(2) gives the Income Tax Officer the authority to disallow any expenditure incurred and payment made or to be made to certain specified persons if he believes the expenditure is excessive or unreasonable in comparison to the fair market value of the goods, services, or facilities provided.

TDS on Rent Section 194I: Individuals who have property, construction, equipment and furniture rental income, etc. must understand everything about TDS on Rent under Section 194I. In simple words, anyone who is responsible for paying rent to a resident (other than an individual who does not audit under section 44AB) is required to deduct the tax under section 194i.

• What is Section 194I?
• TDS Rules on Rent for FY 2021-22
• TDS Rate on Rent for FY 2021-22
• Types of Payment under Section 194I for TDS
• Who is Liable to Deduct TDS under 194I?
• When TDS is not Deductable under Section 194I?
• TDS on Rent – Exclusive of Service Tax
• Refund From TDS on Rent
• Penalty for Not Paying TDS on Rent under Section 194I
• FAQ’s on TDS on Rent Section 194I

What is Section 194I?

Section 194i of the Income Tax Act states that:

• The person who pays the rent (not an individual, or a HUF) is liable to deduct tax on his/her source.
• For the Fiscal Year 2020-21, the TDS threshold is Rs 2,40,000 for the deduction of income tax.
  The limit of the threshold until Fiscal Year 2018-19 was Rs. 1.80.000.
• In addition, the tax must be deducted at source by persons and/or the HUFs who are subject to tax audits.

TDS Rules on Rent for FY 2021-22

TDS on rent is not subject to a surcharge unless the payment is in excess of Rs.1 crore and it is made by a foreign entity.

• The payee must provide the landlord’s or person receiving rent’s PAN card number in order to deduct TDS.
• TDS on rent is deducted at a rate of 20% under Section 206AA if it is not shared.
• There is no Secondary and Higher Education Cess or Education Cess charged by TDS on rent.
• There is no TDS on ground rent, municipal taxes, or other sums if the tenant pays them.
• TDS is deducted on non-refundable deposits provided to the landlord as a security deposit for the use of the asset, but not from refundable deposits.

TDS Rate on Rent for FY 2021-22

The new updated TDS Rate Chart for FY 2021-22 PDF download link is available at the official website of the income tax department. Also, individuals can refer to the TDS Rate chart on rent from the following table:

Types of Payment under Section 194I for TDS

Depending on the assets, such as factories, furniture, buildings, and hotels, are taxed at different rates. Let’s understand the types of payment covered under section 194i:

1. Rent from Factory Building: When a factory building is rented, the rent is collected from the factory owner or landlord. In some circumstances, the landlord receives it as rental income. In certain circumstances, the landlord rent is considered business income, mandating the payment of an advance tax and the return of the rent income due to the deduction of tax at source.
2. Two people are renting furniture or a building: When a building and its contents are rented by 2 separate people, the tax is only taken from the building rent.
3. Rent from Hotel holding Seminars with Meals: When hotels do not charge for utilising the facilities but simply for catering or meals, tax is deducted at the source. Section 194C is used in the catering industry.
4. Service Costs Paid to Business Centers: Service charges paid to business centres are considered rent as well.
5. Tax Deduction based on Rent Period: It is not required to deduct tax on a monthly basis. It is determined by the rental time and deducted accordingly. If the rent is paid annually, for example, a tax deduction is made each year.
6. Renting a Hall by an Association: If an association hires a hall, tax is deducted if the rent is more than Rs.1,80,000.

Who is Liable to Deduct TDS under 194I?

Individuals meeting the following criteria are liable to deduct TDS 194i:

• The person (who is neither an individual or a HUF) who is responsible for paying rent to a resident is required to deduct tax at source.
• Individuals and HUFs (not subject to tax audit) paying rent to a resident in excess of Rs.50,000 per month are required to deduct TDS at a rate of 5%, according to the 2017 Budget. This change will take effect on June 1, 2017.
• If the total amount of such income credited/paid or likely to be credited/paid to the account of or to the payee by the aforesaid individual during the financial year exceeds Rs.2,40,000. Until FY 2018-19, the ceiling was Rs 1,80,000.

When TDS is not Deductable under Section 194I?

There are some circumstances in which there is no tax deduction at source, such as:

Amount paid or payable in the fiscal year of not more than Rs.1,80,000: There is no tax deduction if the amount of rent paid to the landlord or lessee in the financial year is less than Rs.1,80,000.

Section 194I claims no tax deduction from amounts payable or to be paid by a HUF or an individual if the individual or HUF is not engaged in any profession or business, or if the individual or HUF was not subject to a tax audit in the previous financial year.

Paying a Government Agency: Section 196 stipulates that when any money is paid to a government agency, no tax must be deducted at source. Amounts charged for housing accommodation, development, planning, or enhancement of towns, villages, and cities in the country are exempt from any tax deduction at source, according to Section 10 (20A). Rent paid to a government agency, a local government, or a statutory authority is not eligible for tax deduction at source under Section 10 clauses (20) and (20A).

When a Film Exhibitor and Distributor owns a Cinema Theatre share the profits: There are no such costs paid when revenues are divided between a film exhibitor and distributor who own a cinema theatre, according to Section 194I. The reason for this is that the exhibitor does not rent the cinema hall to the distributor, and the exhibitor’s portion comes from composite services.

TDS on Rent – Exclusive of Service Tax

TDS is subject to service tax only if the total amount received from many sources in the financial year exceeds Rs.10 lakh. Cess will be included in the Service Tax. It’s important to remember, that service tax will only be calculated on the actual rent, not the service tax that will be paid.

Refund From TDS on Rent

When submitting an income tax return, the taxpayer can claim TDS as credit and pay just the difference between the actual amount of tax due based on the income tax slab rates and the TDS deduction on rent. However, if the TDS deducted was higher than calculated, you can always request an income tax refund.

Penalty for Not Paying TDS on Rent under Section 194I

• From the date when tax is deductible until the date when tax is deducted, a taxpayer who is required to deduct TDS must pay interest at the rate of 1% per month.
• From the day tax is deducted to the date the TDS is deposited, a taxpayer who has deducted tax but has not paid it to the government is subject to pay interest at the rate of 1.5% per month.

FAQ’s on TDS on Rent Section 194I

Question 1.
What is the section code for TDS on rent?

Answer:
TDS on rent is covered by section 194I of the income tax law. It requires TDS deduction from persons (other than individuals/HUFs) who make rental payments to resident Indians in excess of a certain amount, i.e. Rs. 2,40,000 per year.

Question 2.
What is TDS on hotel room rent 194i?

Answer:
The TDS is not applicable on hotel room rent in absence of any contract.

Question 3.
Define Rent under Section 194I?

Answer:
‘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: Land or Building (including factory building) or Land appurtenant to a building (including factory building) or Machinery or Plant or  Equipment or Furniture or Fittings.