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Section 194I- TDS on Rent Payments
Introduction:
Section 194-I of the Income Tax Act governs Tax Deducted at Source (TDS) on payments made as rent to a resident person. This provision ensures the correct deduction and remittance of taxes on rent payments. Here's a comprehensive overview of Section 194-I:
Responsible for Deduction:
TDS on rent is to be deducted by the following entities:
Any person, other than an individual or Hindu Undivided Family (HUF).
Individual or HUF whose total sales, gross receipts, or turnover from business or profession exceed ₹1 crore (for business) or ₹50 lakh (for profession) during the financial year immediately preceding the year in which the payment is made.
Threshold Limit:
No TDS is required if the aggregate rent payments credited or paid to the payee during the financial year do not exceed ₹2,40,000. This limit applies separately to each co-owner when the share of each co-owner is known.
Definition of Rent:
"Rent" includes any payment, by any name, under any lease, sub-lease, tenancy, or any other agreement or arrangement for the use of various assets, including land, buildings, machinery, plant, equipment, furniture, fittings, and equipment, whether or not owned by the payee.
Timing of TDS Deduction:
TDS must be deducted at the time of making the payment or crediting the payee's account, whichever occurs earlier.
| Nature of Assets | TDS Rate |
| Machinery, plant, or equipment | 2% |
| Land, building (including factory building), land appurtenant to a building (including factory building), furniture, fittings | 10% |
Exemption from TDS:
TDS is not applicable in the following cases:
Payments to the Government, local authorities under section 10(20), and statutory authorities under section 10(20A).
Rent payments to a business trust, being a real estate investment trust, for real estate assets referred to in section 10(23FCA) owned directly by such business trust.
Exemption or Relaxation:
Recipients can apply to the Assessing Officer in Form 13 to obtain a certificate authorizing the payer to deduct tax at a lower rate or not deduct any tax, as per Section 197.
Circular & Notification
Circular. No.23/2017 TDS not deductible on GST Component: CBDT
In the light of the fact that even under the new GST regime, the rationale of excluding the tax component from the purview of TDS remains valid, the Board hereby clarifies that wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid or payable without including such ‘GST on services’ component. GST for these purposes shall include Integrated Goods and Services Tax, Central Goods and Services Tax, State Goods and Services Tax and Union Territory Goods and Services Tax.
CIRCULAR NO. 4/2008, DATED 28-4-2008
Clarification on deduction of tax at source (TDS) on service tax component on rental income under section 194-I of the Income-tax Act
Service tax paid by the tenant doesn’t partake the nature of "income" of the landlord. The landlord only acts as a collecting agency for the Government for the collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of the Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
Circular: No. 718, dated 22-8-1995
Query No. 1: Whether tax is required to be deducted at source where rent has been paid in advance before 1-6-1994?
Answer: Where an advance of rent has been paid before 1-6-1994, there is no requirement for deduction of tax at source.
Query No. 2: Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?
Answer: In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at the source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act.
Query No. 3: Whether the tax is to be deducted at source from warehousing charges?
Answer: The term ‘rent’ as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be subject to a deduction of tax under section 194-I.
Query No. 4: On what amount the tax is to be deducted at source if the rentals include municipal tax, ground rent, etc?
Answer: The basis of tax deduction at source under section 194-I is "income by way of rent". Rent has been defined, in the Explanation (i) of section 194-I, to mean any payment under any lease, tenancy, agreement, etc., for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the tenant, no tax will be deducted on such sum.
Query No. 5: Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?
Answer: Yes, the definition of the term "any land" or "any building" would include a part or a portion of such land or building.
Circular 5-2002/30-07-2002
Question 20: Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
Answer: Payments made by persons, other individuals, and HUFs for hotel accommodation taken on a regular basis will be in the nature of rent subject to TDS under section 194-I.
Question 21: Whether the limit of Rs. 2,40,000 * [ As per effective date ]per annum would apply separately for each co-owner of a property?
Answer: Under section 194-I, the tax is deductible from payment by way of rent, if such payment of the payee during the year is likely to be Rs. 2,40,000 or more. If there are a number of payees, each having a definite and ascertainable share in the property, the limit of Rs. 2,40,000 will apply to each of the payee/co-owner separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS provisions.
Question 22: Whether the rent paid should be enhanced for notional income in respect of the deposit given to the landlord?
Answer: The tax is to be deducted from the actual payment and there is no need to compute notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.
Question 23: Whether payments made by the company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I ?
Answer: The tax is to be deducted from rent paid, by whatever name called, for the hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I.
Question 24: Whether in the case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted?
Answer: If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted under section 194-I from payments thereof.
- P. Warehousing & Logistics Corporation v. ACIT (ITA No. 491/Ind/2019)
TDS threshold will apply to each joint owner of the property separately while deducting tax on the payment of rent
- CIT v/s Khamba [1986] TDS on Agricultural income
Bombay High Court has interpreted the highlighted words ‘Subject to’ in Section. 5 as follows:
“The expression ‘subject to’ used in the opening portion of both Ss.(1) and Ss.(2) of S. 5 has to be read keeping in mind that S. 5 is intended to explain the scope of total income. Therefore, what the use of the said expression shows is that in considering what is total income u/s.5, one has to exclude such income as is excluded from the scope of total income by reason of any other pro-vision of the IT Act and not that the other provisions of the IT Act override the provisions of Section 5.”
Agricultural income is defined under the Income-tax Act, 1961 of Section. 2(1A)
“any rent or revenue derived from land which is situated in India and is used for agricultural purposes;”
Hence, it is obvious that the TDS provisions are not independent of other provisions of the Act and whether the income is chargeable to tax under the Act or not has to be considered while deducting TDS.
Additional Information:
Payments made by an individual reimbursed by a company are generally not subject to TDS. This is because the individual makes the payment, and the company reimburses the expenditure.
Lump-sum lease premiums or one-time upfront lease charges that are not adjustable against periodic rent are not considered payments in the nature of rent under Section 194-I and are not subject to TDS.
Understanding these provisions is essential for entities involved in making rent payments to ensure compliance with tax regulations effectively. It promotes transparency and efficient tax administration.
