Section 194I TDS On Rent: What Is It, Inclusions & TDS Rates
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Rent, being a significant source of income for the country, came into the ambit of tax through Section 194I. This section includes provisions regarding tax deduction on rental income, which is earned by self-employed professionals.
The following sections provide a comprehensive overview of Section 194I.
Table of contents
- About Section 194I
- What Qualifies as Rent with Reference to Section 194I?
- Payments Covered under Section 194I
- Who is Liable to deduct TDS?
- Rate of TDS under Section 194I
- When is Tax Deduction under Section 194I not Applicable?
- What is the time limit on depositing TDS?
- Consequences of non-deduction or non-payment of TDS
- Final Word
- Frequently Asked Questions
About Section 194I
You have to deduct a tax (TDS on rent) from the amount that you are paying as rent and submit it to the government. However, a TDS on rent is only necessary if the rent that you are paying is more than Rs. 2,40,000 in a financial year.
Hindu Undivided Family (HUF) or individuals not liable to tax audits have to deduct 5% of the rent amount. However, this is only the case if they have to pay a rent of more than Rs. 50,000 each month to a resident Indian.
Also, Read – Tax Saving Instruments In India
What Qualifies as Rent with Reference to Section 194I?
While learning about Section 194I TDS, you should have a clear idea about what rent is. ‘Rent’ is any payment that you have to make under any sub-lease, lease, tenancy or any arrangement for using any of the following either together or separately:
- Land
- Machinery
- Equipment
- Furniture
- Fittings
- Land appurtenant
In case a landlord collects an advance or security payment while letting out a space to a tenant under the condition that they will return the amount when the tenant vacates the space, then that would not be eligible for Section 194I tds deduction.
However, rent that is paid in advance (not the security deposit that is refunded) will come under the ambit of deduction.
Also Read- Taxation In Mutual Funds
Payments Covered under Section 194I
The following payments are eligible for Section 194I TDS on rent:
TDS where furniture and building are let out by different persons
If the building is rented out by one person and the furniture by a separate person, then the payee has to deduct tax under Section 194I only on the amount that is paid as the rent of the building.
TDS on rent when rent is not paid each month
There is no provision in Section 194I that mandates tax deductions on a monthly basis. So, if one pays the rent on a quarterly basis, then tax deduction should also take place in the same interval. Similarly, if rent is to be paid once a year, the deduction will also occur on a yearly basis.
Hall rent payment by associations
As an association is considered to be an association of persons and not individuals, there has to be a tax deduction on the amount that is paid as hall rent. However, the amount should be more than Rs. 2,40,000 for one financial year.
Payments made to hotels for seminars
In case hotels do not charge for the use of space for a seminar, but only for the catering, then a tax deduction is necessary only on the amount paid towards catering.
Who is Liable to deduct TDS?
- Any individual who pays for an income to any resident in the form of rent is liable to deduct tax at source except individual or HUF.
- According to the 2017 budget, individuals or HUF not covered under tax audits and are paying rent to residents and the amount is exceeding INR 50,000 per month, can deduct tax at the rate of 5 % with effect from 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.
Rate of TDS under Section 194I
The following tables show the rate of TDS on rent that you need to deduct while paying rent:
| Rate of deduction | Nature of payment |
| 2% | Rent paid for plant and machinery |
| 10% (5% in case the rent is more than Rs. 50,000 per month and is paid by individuals or HUFs who are not liable to tax audits) | Rent paid for building, piece of land, or furniture |
| Rate of TDS from May 14 2020 to March 31 2021 | Nature of payment |
| 1.5% | Rent paid for plant and machinery |
| 7.5% (3.5% in case the rent is more than Rs. 50,000 per month and is paid by individuals or HUFs who are not liable to tax audits) | Rent paid for building, piece of land, or furniture |
When is Tax Deduction under Section 194I not Applicable?
Tax deduction under Section 194I is not applicable for the following cases:
Payable amount is below Rs. 2,40,000 in a financial year
If the amount that is payable as rent does not exceed Rs. 2,40,000 in one financial year then you do not need to make any tax deduction.
The payee is the government
If you are paying the amount to the government, then you do not need to make a tax deduction as per Section 194I. Furthermore, payments that you make to any local authority or statutory authority are exempted from tax deduction under Section 194I.
Tenant is an individual or an HUF
Tax deduction under Section 194I is not applicable if an individual or Hindu Undivided Family (not liable to tax audit) has to pay the rent amount.
Sharing of proceeds between a film distributor and theatre owners
In the case of an agreement between a film distributor and exhibitor who owns a theatre, deductions under Section 194I are not applicable. This is because the distributor does not take the cinema building on lease or rent or under any arrangement or agreement. The payment that is made is not rent.
What is the time limit on depositing TDS?
- If any payment is made by the government or in instances where payments are made on behalf of the government, then the deposit is done on the same day without any challan form.
- In case if the payment is not made by the government, then the deposit is done on or before the 7th day from the end of the month in which the deduction happened. In this case, tax is paid along with an income tax challan.
If the payments are made in the month of March, then it happens on or before the 30th of April and for any other instances, it’s made on or before 7 days from the end of the month when the deduction was made.
Consequences of non-deduction or non-payment of TDS
- A person who is liable to deduct taxes is entitled to pay interest at the rate of 1% each month from the date when the tax was supposed to be deducted to the date of deduction.
- 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 percent per month.
Final Word
If you either pay an amount as rent or receive any rental income, you should be aware of the tax deductions that are made under Section 194I. The above sections include a detailed idea about Section 194I and various aspects related to it.
Frequently Asked Questions
Yes, there are certain consequences for not paying or deducting the TDS on rent amount:
> Delay in deduction will attract an interest of 1% per month from the day the deduction was to be made to the date of deduction.
> If you deduct tax but do not submit on time, you have to pay interest at 1.5% per month from the date of deduction to the date of deposition.
If the payment is made either by or on behalf of the government, then you have to deposit the TDS on the same day. For payment in other cases, the deposition can be made either on or before 7 days from the end of the month in which the tax deduction was made.
No, tax deduction under Section 194I is not necessary on one-time lease charges or lump sum premium paid for receiving long-term lease rights. Such payments are not adjustable against periodic rent payable/paid and therefore would not qualify as rent under Section 194I.
The GST is not a part of the income of the landlord. A landlord simply acts as an agency for the collection of GST on behalf of the government. So, you have to make a tax deduction under Section 194I on the rent amount without including GST.
The income from letting out a cold storage facility will not qualify for tax deduction under Section 194I. This is because the main function of cold storage is preserving goods. Storage is a kind of a service that doesn’t fall under Section 194I.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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