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2022

Applicability of TDS on Rent (Section 194I of the Income Tax Act, 1961)

Applicability of TDS on Rent Blog post

Section 194I of the income tax covers TDS on rent. It imposes obligation for TDS deduction on persons(other than individual/HUF) making rental payments to resident Indians above a specified limit. The rent under this section broadly includes house rent, machine rent, building rent, office rent, furniture rent etc.

The Finance Act, 1994 inserted the Section 194I, regarding deduction of tax from rent. The Government introduced the provision to cover the income by way of rent under tax deduction at source.

Meaning of Rent:

Rent means any payment made under lease or sub-lease or tenancy or any agreement for use of an immovable property. It is paid to the owner of the immovable property by the tenant or Lessee.

The term ‘Rent’ refers to any payment under any:

  • Tenancy; or
  • Lease; or
  • Sub-Lease; or
  • Any other arrangement where a person has agreed to pay any sum of money to the owner of a property for use of such property.

Property includes:

  • Building including factory building;
  • Land;
  • Land appurtenant to a structure including factory building;
  • Machinery;
  • Plant;
  • Furniture;
  • Equipment;
  • Fittings.

Liability to Deduct TDS u/s 194I:

  • Any person other than individual and HUF is liable to deduct TDS at the time of making payment of any amount by way of rent.
  • The recipient of rent should be a resident Indian.
  • If an Individual or HUF is subject to tax audit u/s 44AB, such individual or HUF is also required to deduct TDS under this section.

Rate of TDS Deduction:

Section

Nature of Income

Rate of TDS

194i(a)

Renting of Machinery / Plant / Equipment

2%

194i(b)

Renting of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings.

10%

Note: However, in case the PAN is not furnished, the payer / tenant would be liable to deduct TDS on Rent at maximum marginal rate i.e. 20%

Threshold Limit under Section 194I:

  • Section 194-I of the Income Tax Act, 1961 provides that no TDS would be deducted if the income credited / paid during the Financial Year does not exceed INR 2,40,000.
  • Please note that earlier the threshold exemption limit was INR 1,80,000, however, from Financial Year 2019-2020 the threshold exemption limit for TDS on Rent has been increased to INR 2,40,000.

Nature of Payment covered under this Section:

Income from letting out of factory building:

  • Where a factory building is let out, the rent received generally is income from business in the hands of the lessor or the owner of the factory. Only in a few cases, it is income from property in the lessor’s hands.
  • But such payment also, which is business income in the hands of the lessor and for which he will necessarily be paying advance tax and finally be returning the rental income, will be subject to tax deduction at source or TDS.
  • This is an unnecessary burden on both taxpayer and the tax administrator because the collection of tax will take place as TDS from the lessor without much delay.

Rent includes service charges:

  • Service charges payable to business centres are covered under the definition of rent, as they cover payments by whatever named called.

TDS requirement where building and furniture, etc., let out by separate persons:

  • In the case where a building is let out by one person and furniture and fixtures are let out by another person, then the payee is required to deduct tax under Sec. 194I only from the rent paid/credited for the hire of building.

TDS requirement where rent not payable on monthly basis:

  • Section 194I does not mandate that the tax deduction should be made on a month-to-month basis.
  • Therefore, if the crediting of the rent is done on a quarterly basis, the deduction at source will have to be made on a quarterly basis only. Where the rent is paid on a yearly basis, deduction also will have to be made once a year on the basis of the actual payment or credit.


Charges regarding Cold Storage Facility:

  • In the case of cold storage where milk, ice cream, and vegetables, are stored, the payment may be styled as charges for use of plant and not for use of the building. Cold storage is a plant.

Hall rent paid by an association for use of it:

  • Since the association is assessed as an association of persons and not as an individual or HUF, the obligation of tax deduction will be there, provided payment for the use of hall exceeds Rs.2,40,000 from FY 2019-20 onwards (earlier it was Rs.1,80,000).

Payments to Hotels for holding seminars including lunch:

  • Where hotels do not charge for use of premises but charge for catering/meal only, the provisions of Sec. 194I would not apply. However, Sec.194C would apply for catering part.

Exemption from TDS deduction under Section 194I:

  • The aggregate amount paid / payable during the Financial Year doesn’t exceed the threshold exemption limit i.e. doesn’t exceed INR 2,40,000.
  • The payer / tenant is an individual or HUF who is not liable to tax audit as per section 44 (AB) clause (a) or (b).
  • Rent is paid / payable to a Government agency.
  • Sharing of proceeds between a Film Distributor and Exhibitor owing the cinema theatre –
  • The proceeds shared between the film distributor, and the owner of the cinema theatre (Exhibitor) will not attract TDS under Section 194-I since the share of film exhibitor is on account of composite service and the share / payment is not in the nature of rent.

Time of Deduction of TDS:

  • The Deductor who is liable to deduct TDS under provisions of this sectionis required to deduct TDS within earlier of the following dates:
  • At the time of credit of income to the account of the payee; or
  • At the time of payment in cash, cheque, draft, or by any other mode.
  • For this purpose credit to ― Expense Payable account‖ or Suspense account‖ or any other name shall be deemed to be a credit of such income to the account of the payee.
  • Payment may be made in cash or by issue of a cheque or draft of by any other mode.

Time Limit to deposit TDS:

  • TDS deducted is required to be deposited to the credit of the Government within given below timeline to avoid interest:

Month of Deduction

Due date of deposit of TDS

During any month from April to February

7th of Subsequent Month

During the month of March

30th April

TDS Return Filing Due Date:

Quarter

TDS Return Filing Due Date

Q1: April to June

31st July

Q2: July to September

31st October

Q3: October to December

31st January

Q4: January to March

31st May

Due Date of Issuance of TDS Certificate:

Quarter

TDS Return Filing Due Date

Q1: April to June

15th  August

Q2: July to September

15th  November

Q3: October to December

15th February

Q4: January to March

15th June

Interest on Late Filing:

Section

Nature of Default

Interest Payable

Period for which interest is to be paid

201A

Non deduction of tax at source, either in whole or in part

1% per month or part thereof

From the date on which tax deductible to the date on which tax is actually deducted.

After deduction of tax, Non-payment of tax either in whole or in part

1.5% per month or part thereof

From the date of deduction to the date of payment.

Notes:

  • The above interest should be paid before filing of TDS return. The deductor can make the payment of interest on such late payment of TDS before filing TDS returns or demand raised by TRACES.
  • The interest paid u/s 201A is not allowed as an expense under the Income Tax provisions.
  • Interest to be calculated on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

Penalty for late filing of TDS Returns:

  • Section 234E:
  • The deductor will be liable to pay by way of fees Rs.200 per day till the failure to pay TDS continues.
  • However, the penalty should not exceed the amount of TDS for which the statement was required to be filed.

Section 271H:

  • Also, a penalty from Rs.10,000 to Rs.1 lakh is leviable under Section 271H if a company provides incorrect information or fails to submit the returns within the specified due date.
  • This penalty will be charged in addition to the penalty under Section 234E.
  • No penalty under Section 271H will be charged in case of delay in filing the TDS/TCS return if the following conditions are satisfied:
  • The tax deducted/collected at source is paid to the credit of the government.
  • Late filing fees and interest (if any) is paid to the credit of the government.
  • The TDS/TCS return is filed before the expiry of a period of one year from the due date specified in this behalf.

 

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