Section 194I – TDS on Rent – Income Tax
Table of Contents
What is Section 194I – TDS on Rent?
Section 194I contains a provision related to the deduction of tax at source (‘TDS’) from Income by way of Rent.
What is the meaning of Rent u/s 194I – TDS on Rent?
Rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement, or arrangement for the use of any:
- Land and Buildings,
- Plant and machinery
- Equipment
- Furniture and fixtures
The person receiving the rent may or may not be the owner of the above assets
What is the threshold for applicability of section 194I
Tax is required to deduct if the rent paid/credited exceeds Rs 2,40,000/- during the financial year.
- Rs 2.4 Lakhs applicable from 1st April 2019
- Rs 1.8 Lakhs from 1st July 2020 to 31st March 2019
Once the amount exceeds the threshold limit, then TDS needs to be deducted from the entire amount of rent paid.
What is the rate of TDS
The rate of TDS during the financial year 2020-21 is as follows:
| Up to 13th May 2020 | From 14th May 2020 to 31st March 2021 | |
| For the use of machinery, plant or equipment | 2% | 1.50% |
| For the use of land, building, or furniture or fixtures | 10% | 7.50% |
When tax has to be deducted u/s 194I
The tax has to be deducted u/s 194I TDS on rent, being earlier of the followings:
- at the time of payment;
- at the time of credit of such income to the account of the payee
Who is liable to deduct TDS u/s 194I
Any person paying income by way of rent to any resident is required to deduct TDS (‘Tax deducted at source’) under section 194I.
Any person includes Individual or Hindu undivided family (‘HUF’) whose accounts are required to be audited u/s 44AB. So, Individual or HUF whose account does not get covered under tax audit will not be liable for section 194I.
In the case of a Company/Firm, the company or firm itself including the person responsible for paying rent should proper deduction of TDS.
Is Individual or HUF not liable to deduct TDS u/s 194I
There is a separate section 194-IB for TDS on rent deducted by Individual or HUF who are not liable for audit under section 44AB.
TDS amount exclusive of GST
TDS needs to be deducted excluding the GST component
Lower / Nil deduction of TDS on Rent under section 197
The recipient of Income can apply in Form No 13 to the Assessing Officer to get a certificate authorizing the payer to deduct tax at lower or deduct no tax as may be appropriate.
Under what circumstance TDS u/s 194I is not deductible
In the following circumstances TDS requirement u/s 194I is not applicable:
- In case the payee is a Government, TDS u/s 194I is not applicable.
- Also, Local authorities and Statutory authorities referred in section 10(20A) / 10(20), if the person responsible for paying is satisfied with the exemption status based on requisite certification provided by such authorities.
- As mentioned earlier, Individual or HUF whose accounts are not required to get audit u/s 44AB, will not attract 194I. For such persons, section 194IB will apply.
- No tax is required to deducted if the amount of rent paid does not exceed Rs 2.4 Lakhs during the financial.
What is the time limit for depositing TDS?
The time limit for depositing TDS amount to the account of the Government
- Government: The amount needs to be paid on the same day where the payment is made by or on behalf of the Government
- Other than Government:
- Amount paid or credit in March, within next month by 30th April
- Any other case: the amount has to be deposited within the 7th of the next month.
Tax credit in respect of rent paid in advance:
The recipient of rent can claim the tax credit in respect of tax deducted at sources. Tax credit in respect of tax deducted on advance rent will be available as under:
- Tax is deducted at source under the provisions of section 194I on advance rent pertaining to more than one financial year to be adjusted against future rent;
- After the deduction of tax at source on advance rent pertaining to one or more financial years:
- Rent agreement get canceled/terminated resulting in the refund of the balance amount of advance rent to the tenant
- The rented property is transferred by way of sale, lease, gift, etc. with tenant in an occupation or otherwise resulting in the refund of balancing the amount of advance rent to the transferee or the tenant, as the case may be
Consequences of non-deduction / non-payment of TDS
Where the person who is required to deduct TDS, does not deduct or does not pay, or after deducting fails to pay the whole or any part of the tax, then such person shall be deemed to be assessee-in-default in respect of tax.
- Delay in deduction: Interest @ 1% per month for the entire period from the date when liability arises till the actual date tax is deducted.
- Delay in deposit: Interest @1.5% per month for the entire period from the date of deduction of TDS to the actual date of deposit.
Further, there is a penal provision for the non-filing of TDS return in a timely manner.
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