TDS on Rent Payment – Section 194I [Ultimate Guide 2023]
The ultimate guide here decoding the provisions of TDS on Rent- Section 194I of the Income Tax Act. Section 194I deals with TDS on payment of rent for land, Buildings, Plant & machinery including equipment and furniture.
TDS on Rent, as per Section 194I, is a provision that requires tenants (not being an individual or HUF) to deduct tax at source before making rent payments to landlords.
The deducted amount is then deposited with the government as income tax on behalf of the landlord.
Section 194I deals with TDS on payment of rent. In this post we will discuss:
- What is Section 194I of the Income Tax Act?
- What is the meaning of Rent?
- When TDS on rent is deducted?
- Who is liable to deduct TDS under section 194i?
- What is the rate of TDS on Payment of Rent?
- TDS on rent limit/ rental income limit (threshold) for TDS
Now, let’s see the provisions of section 194i to get the answers to all these questions.
What is Section 194I?
- Section 194I talks about the provisions of TDS on the payment of Rent.
- The person (not being an Individual or HUF) who is responsible for paying rent is liable to deduct tax at source.
- in case the aggregate of the amount of rent credited or paid or likely to be credited or paid during the financial year exceeds Rs.240,000/-
- Individuals or HUFs who are subject to tax audits are also under an obligation to deduct the TDS.
Note: * Threshold limit for deduction of TDS on rent is increased from Rs. 1,80,000 to Rs. 2,40,000 for FY 2019-20 onwards.
Meaning of ‘Rent’ for the purpose of section 194I
- ‘Rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:
- land or
- Building (including factory building) or
- Land appurtenant to a building (including factory building) or
- Machinery or
- Plant or
- Equipment or
- Furniture or
- whether or not any or all of the above are owned by the payee-Explanation (i) to Sec. 194-I. Thus, Sub-letting is also covered.
Person Liable to Deduct TDS under section 194I
- Section 194I is applicable to a person (not being an Individual or HUF) who is responsible for paying any income to a resident by way of rent is liable to deduct tax at source.
- Where the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to payee exceeds Rs.
Note: As per the Finance Act, 2017, individual /HUF (not covered under Tax Audit) paying rent to a resident exceeding Rs 50,000 per month are also liable to deduct TDS @ 5% ( With effective from 01.06.2017).
When to deduct TDS on Rent?
- TDS is to be deducted at the time of credit of ‘income by way of rent’ to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.
What is the Rate of TDS on Rent Payments?
|Nature of payment
|Rent of Plant and machinery
|Rent of land or building or furniture or fittings
Frequently Asked Questions (FAQ) on TDS on Rent – Section 194I
1. What is TDS on Rent (Section 194I)?
TDS on Rent, as per Section 194I of the Income Tax Act, is the provision where a person (the tenant not being an individual or HUF) is required to deduct tax at source before making payment of rent to the landlord.
2. Who is liable to deduct TDS on Rent?
Any person or entity who is making rental payments for a property is liable to deduct TDS on Rent. This includes individuals, businesses, and organizations.
3. When is TDS on Rent applicable?
TDS on Rent is applicable if the total rent paid or payable to the landlord during a financial year exceeds Rs. 2,40,000. If the total rent amount is below this threshold, TDS is not required.
4. What is the applicable TDS rate under Section 194I?
5. Is TDS applicable to all types of rent payments?
No, TDS on Rent is applicable only when the annual rent paid or payable to the landlord exceeds Rs. 2,40,000. If the total rent amount for the year is less than this threshold, TDS is not required.
6. When should the TDS on Rent be deducted?
TDS on Rent should be deducted at the time of credit to the landlord’s account or at the time of payment, whichever is earlier.
7. What are the due dates for depositing TDS on Rent?
The deducted TDS on Rent must be deposited with the government on a monthly basis. The due date for depositing TDS is generally the 7th of the following month in which the deduction is made.
For example, if TDS is deducted in July 2023, it must be deposited by the 7th of August 2023.
8. Are there any exemptions from TDS on Rent?
Yes, there are a couple of exemptions:
(a) Individuals and HUFs not covered under tax audit (Section 44AB) provisions are exempt from deducting TDS on Rent.
(b) If the total rent for the year does not exceed Rs. 2,40,000, TDS is not applicable.
9. Can TDS be adjusted against the landlord’s tax liability?
Yes, the TDS amount deducted by the tenant can be adjusted against the landlord’s tax liability at the time of filing their income tax return. The landlord can claim a credit for the TDS amount deducted.
10. Is there a penalty for non-compliance with TDS on Rent provisions?
Yes, if the tenant fails to deduct TDS on Rent or does not deposit the deducted amount (on or before the due) with the government, they may be subject to penalties and interest as per the Income Tax Act.
11. What are the key documents required for TDS on Rent compliance?
The key documents required for TDS on Rent compliance include:
- Copy of Rent agreement (lease agreement) between the tenant and landlord
- PAN of the landlord
- Copy of TDS Challan
- Proof of deposit of TDS