Understanding TDS on Rent Under Section 194I

Upon hearing the word ‘rent’, the first thought that comes to the mind is the payment that knocks on your door at the beginning (or the end) of every month. Rent can appear on the head in the form of anything. Right from machine rent, office rent to house rent, the list seems to be quite endless.

But, did you know you could have a TDS on rent under section 194I? Yes, you read it right. Scroll down and find out more about the varying aspects of this section.

What is Section 194I?

Introduced by the Finance Act, 1994, this specific section states that anybody, whether a HUF or an individual, who takes rent as an Income is liable for TDS when the income credited is more than Rs. 1,80,000 in a specific financial year.

However, for FY 2019-20, the TDS on rent limit has been increased to Rs. 2,40,000. Also, unless the amount exceeds Rs. 1 crore, there is no surcharge. Moreover, in case the rent is being paid to an agency or a government body, it will be exempted from TDS.

Defining Rent as Per Section 194I

Whether the person who is paying the rent is an owner or not, rent under section 194I defines any payment that is made for using any one of the things mentioned below:

• A Land
• A building (including the one being used for a factory)
• Fittings
• Machinery
• Furniture
• Land appurtenant to a building (including the one being used for a factory)
• Equipment
• Plant

Terms and Conditions

• No surcharge is levied on TDS on rent except if a foreign company is involved and the payment exceeds Rs. 1 crore.
• For the Deduction of TDS, the PAN number of the person receiving rent or the Landlord will be required so as to give to the payee. Upon not sharing the pan details, the TDS on rent will be deducted at the 20% rate under section 206AA.
• TDS on rent does not consider any higher or secondary education cess.
• In case the tenant is paying for municipal Taxes, ground rent, etc., no TDS will be charged on these amounts.
• If the payment has been made regularly for hotel accommodation, TDS will be levied.

TDS Rates Under Section 194I

The tax deduction rates of 194I TDS majorly depend upon the payment’s nature.

The below-mentioned table will give you an idea regarding the same:

  Note that if more than an individual jointly holds any asset, the TDS on rent will be paid only in case the share of one owner is more than Rs. 1,80,000 in a financial year under section 194I of the income tax Act.

Payments Covered Under Section 194I for TDS

Under this section, the tax gets deducted at different rates for varied assets. Some of them are mentioned below:

• Rent from a building allotted for factory use
• Rent from a building or furniture by two individuals
• Rent from a Facility of cold storage
• Rent from hotel holding seminars (meals included)
• Service charges paid to business centres
• Tax deduction according to rent period
• Hall given on Lease to an association

Advance Rent TDS

In situations when an advance rent is paid to the landlord, TDS shall be deducted. But, there are some exceptions here, such as:

• When the advance rent crosses one financial year, the charged TDS will be in proportion with the income on the Basis of Form 16 issued specifically for the total advanced rent

• If the asset is being transferred or sold to any other individual, the TDS credited on rent will not be availed till the sale or transfer is made; after that, the TDS will be credited to the new owner

• If the advance rent has already been paid and the TDS has been deducted, but later there turns out to be a cancellation of the agreement, the balance amount will be refunded to the tenant; as per CBDT, it is the responsibility of the landlord to mention the rent agreement cancellation in the ITR form

• In case of payments, apart from salary, the TDS certificate should be issued every quarter in the Form 16A

Conclusion

While filing the Income Tax Return, being a tax payee, you get to claim TDS after calculating the difference between the amount calculated on the basis of the income tax slab rate and the deduction of the TDS made on rent. But, you can always claim the Tax Refund if the TDS deducted under section 194I is more than the amount that has been computed.

FAQs

1. What is section 194I?

A: According to section 194I of the Finance Act of 1994, any individual who pays the rent is liable to subtract the Tax Deducted at Source or TDS. The rate of interest for TDS will depend on the item that has been rented and the rental value.

2. What does rent according to the act mean?

A: According to the act, the rent will cover sublease, tenancy or lease, or any similar agreement for a given period and a certain amount.

3. What can be covered under the rental agreement?

A: Under a rental agreement, some of the items that you can cover are as follows:

• Land
• Building
• Factory, including machinery
• Furniture
• Equipment
• Fittings

4. Are the interest rates for TDS for different items?

A: Yes, the interest rates for different products under the rental agreement are different. For example, the TDS for renting machinery, plant, and equipment is 2%, and the TDS for renting land, factory building, furniture, and fittings is 10%.

5. When is TDS under section 194I collected?

A: The TDS collected must be credited to the payee's account at the time of crediting the rent.

6. Is there any surcharge on the TDS?

A: There is no surcharge on the TDS unless the rental value exceeds Rs.1 crore. Here the income falls under the highest tax slab of 31.2%, making it liable for the surcharge.

7. Can exemption be claimed under section 194I?

A: Yes, exemption on TDS can be claimed if the aggregate amount payable does not exceed Rs. 2,40,000. This limit applies to the financial year of 2020-2021. You can also claim an exemption if the tenant is an individual or belongs to the hindu undivided family or HUF and cannot be audited as per Section 44 (AB) Clause (a) or (b).

8. Can there be separate TDS be charged for furniture and building?

A: If the building and the furniture have been rented from different companies, the TDS will be charged by the independent firms. However, if the building and furniture together have been let out by a single person, then TDS will be charged together and not separately.

9. Is TDS charged for the security deposit?

A: No TDS cannot be levied on the security deposit. The TDs will be calculated and charged on the rental value.

10. Is there any penalty if TDS is not deducted?

A: Yes, if TDS under section 194I is not deducted, the tenant is liable to pay the penalty at the rate of 1% of the rental value per month from the month tax was to be deducted to the month tax was deducted.