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:
| Income Type | TDS Rate on Rent |
|---|---|
| TDS Rate on Rent of machinery, equipment or plant | 2% TDS |
| TDS Rate on Rent of land, furniture, fitting or building to HUF or individual | 10% TDS |
| TDS Rate on Rent of land, furniture or building to other than HUF or an individual | 10% TDS |
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:
- 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.
- 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.
- 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.
- Service Costs Paid to Business Centers: Service charges paid to business centres are considered rent as well.
- 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.
- 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.