Section 194I of the Income Tax Act lays down the principles of taxation for rental income. Individuals earning rental income are subject to TDS, including rent on buildings, land, furniture, machinery, etc.
Institutionally, the Government can introduce TDS to tax income at its source. TDS minimizes the chances of tax evasion irrespective of the source. Rents and payments from buildings and property are liable to taxation under Section 194I Of Income Tax.
Section 194 lists the types of income and payments liable for taxation for an Indian citizen. Section 194I highlights the taxation on rental income. Individuals earning more than the newly amended limit of Rs. 2,40,000 annually are liable for TDS deductions.
Any individual generating income from rental income is liable for taxation. This includes rents on a property, machines, equipment, buildings, offices, furniture, etc.
Previously the limit for taxation under this section was Rs.1,80,000 until 2018-19. The rule also applies to HUF (Hindu Undivided Family) under section 2(31) of the Income Tax Act, 1961.
This section states that individuals earning from rents or leasing out properties are liable for taxation. The income tax department introduced it because it is an additional income earned by salaried and business people.
Properties are important sources of investment. As a result, investment prices appreciate in the long run, and it constitutes regular monthly incomes for individuals and HUFs alike. Plus, the IT department can directly tax rents at the source.
The principal inclusion in Section 194I of Income tax is rent. This section defines rent as a payment obtained from leasing or sub-leasing properties. Properties liable to earn rental income include-
Rental income is taxable irrespective of whether the tenant entirely owns it. This also includes sub-letting on behalf of owners/landlords. Advance payments and any other non-refundable payments are taxable under this section.
Also read: Taxability Of Rental Income: Calculation, Deductions And Exemptions https://navi.com/blog/tax-on-rental-income/
Section 194I covers all types of incomes that fall under the ‘rent’ category. A tax deduction is not necessarily a monthly liability. It depends on the crediting of rent which can be done quarterly or even annually.
|Payment type||TDS Rate|
|Rental income on plant and machinery||2%|
|Payments from renting land/furniture/building||10% (5% above Rs. 50,000/month for HUF/individuals)|
A potential taxpayer can, under certain circumstances, apply for less or no deduction to the assessing officer through Form 13. The assessing officer checks his/her total income and, depending on whether it is justified or not, issues Form 15AA.
Apart from these reasons, rental income to government enterprises is not tax deductible. Also, proceeds from film distribution are subject to numerous composite services which are not tax deductible.
Section 194I of Income Tax rules that taxes payable to government agencies should be done on the same day. In other cases, the tax amount is payable 7 days before the end of the month.
Typically, Section 194I rules that taxpayers pay 1% per month as a penalty for untimely payments. Non-payment of taxes after deductions attracts a penalty of 1.5% per month.
Taxation on rental payments is an essential source of revenue for the Government. Section 194I Of Income Tax states that any individual earning rental income is liable to deduct taxes on the source. The 2017 amendments raise the minimum limit for tax deductions and make taxation obligatory for HUFs and individuals under certain conditions.
Circular 715 issued by the Income Tax Department states that hotel room charges are subject to taxation on rental income under section 194I.
Usually, TDS is calculated at 2% under section 194I and 194C. However, if the vehicle is on hire only, section 194I is applicable.
Under Section 194I of Income Tax, TDS is deductible on the interest payable by the builder at 10%. Failure to show PAN may attract taxes of 20%.
Freelancers making a payment to professionals exceeding Rs. 30,000 per transaction annually are applicable to TDS deductions at 10%.
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