Section 194-I of the Indian Income Tax Act

Section 194-I

Under Section 194-I, any person (not being an individual or HUF); who is responsible for paying any income to a resident by way of rent is liable to deduct TDS; provided the aggregate amount of rent paid/credited or likely to be paid/credited during the financial year exceeds Rs. 180000. The rate of TDS is as under:

Section 194-I of the Income Tax Act

  • 2% for the use of any plant or machinery or equipment
  • 10% for the use of any land or building (including factory building) or land appurtenant to a building or furniture or fittings. (5% for individual/HUF who are not liable for the tax audit, if rent exceeds Rs. 50000 per month)

No surcharge or education cess or SHEC is levied on payment to the resident but; if the rent is payable to a foreign company surcharge is applicable, provided the amount exceeds Rs. 1 crore. In case the PAN is not furnished by the payee, TDS rate would be 20%. Where there are co-owners in the rented property, the limit of Rs. 180000 will be calculated separately for each owner; i.e., section 194-I is applicable only if the share of the rent for each such owner exceeds Rs. 180000 during the FY.

A person responsible to TDS deduction shall deduct tax at the time of credit of such rent to the account of the payee; or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier. He must deduct TDS irrespective of the fact whether it is a lease, sub-lease, tenancy or any other arrangement.

This section is also applicable to an individual or HUF, for whom the tax audits are mandatory U/S 44AB.

For the purpose of this section, ‘rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of land and building, plant & machinery, equipment, furniture & fittings, land appurtenant to a building, etc. either separately or jointly.

There is no TDS deduction under this section where the landlord collects advance payment or security at the time of letting out a building to a tenant on the requirement that he will refund the deposit at the time of departing the building, as such a receipt is not in the nature of income. However, the advance rent which is not in the nature of refundable security deposit if paid is subject to tax deduction. Further, if such amount is credited to ‘suspense account’ or any other account, it is also liable to deduct TDS.

The provisions of this section shall not apply to the sharing of proceeds of film exhibition between a film exhibitor owning a cinema theatre and a film distributor as the exhibitor does not let out the cinema hall to the distributor. The share of the exhibitor is on account of composite services, and the distributor does not take cinema building on tenancy or lease or sublease or under an agreement of similar nature.

You must also remember that when the tenant pays the service tax, it is not a part of the rent and so there is no TDS deduction from service tax amount. Also, no tax deduction is required if the rent is paid to the government & statutory/local authorities. If the renter pays municipal taxes, ground rent, etc. then the landlord shall not consider such payment as rent paid to him; and thus there is no tax deduction from such amount.

Individuals and HUF whom this section does not covers; are liable to deduct TDS on rent at 5% if the amount of rent exceeds Rs. 50000 per month. If the rent is paid on a quarterly basis, they must deduct TDS on a quarterly basis whereas if the rent is paid on a yearly basis, they have to deduct TDS once a year on the basis of actual payment or credit.

An assessee may apply for no deduction or deduction at a lower rate in Form 13 to an assessing officer. If an assessing officer is satisfied, he may issue a certificate in Form no 15AA to that effect directly to the payer.

Time limit to deposit TDS under section 194-I

Particulars

Due Date

TDS paid without income tax challan by or on behalf of government

On the same day of TDS deduction

TDS paid with income tax challan by non-government entity

Within 1 week from the end of the month in which TDS is deducted

TDS paid on the month of March

On or before 30th April

Other cases

Within 1 week from the end of the month in which TDS is deducted

Form 16A is to be issued for each quarter within 15 days from the due date for furnishing the statement of TDS deduction; i.e., on or before 30th July, 30th October, 30th January and 30tth May. In case of deduction by or on behalf of the government TDS certificates shall be issued quarterly on or before 15th August, 15th November, 15th February, and 30th May.

Filing of TDS return

Months

For non-government deductors

For government deductors

April to June

15th July

31st July

July to September

15th October

31st October

October to December

15th January

31st January

January to March

15th May

15th May

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