TDS on Rent under section 194I of Income Tax Act 1961

Section 194I of Income Tax Act (TDS on Rent payment) provides the provision related to deduction of TDS on Rent payment to resident on use of house property, land, furniture & fixture, plant & machinery.

This section puts the responsibility on any person (other than individual / HUF) and Individual / HUF (only in case if they require to get accounts audited u/s 44AB).

That if the payment of rent made to residents exceeds the threshold limit in a financial year then there is a need to deduct TDS under section 194I as per the TDS rate on rent.

Let’s understand in detail the provision of section 194I TDS on Rent payment.

What is section 194I of Income Tax Act?

As per the section 194I any person (other than individual or HUF) who is liable to pay rent to a resident in connection with House Property, Land, Furniture & Fixture, Plant & Machinery must deduct TDS while making the payment or at the time of credit whichever is earlier.

In the case of an individual or HUF, if rent payment is made to a resident then there is no need to deduct TDS.

But in case that individual or HUF was required to get its accounts audited under section 44AB in immediately preceding year then individual or HUF will be liable to deduct TDS on payment of rent to a resident.

Remember this section applies only if the deductee (to whom rent is paid) is resident.

Also Read: Section 194N of Income Tax Act (TDS on Cash Withdrawal)

What is the meaning of Rent under section 194I?

Rent mean any payment by whatever name called (i.e. payment under lease, sub-lease, tenancy or any other agreement) for the use of:

Land; or
Building (also includes factory building); or
Land appurtenant to a building (also includes factory building); or
Plant & Machinery; or
Equipment; or
Furniture & Fixtures;

Important Points:

Rent can be for the use of either separately or jointly of the above mentioned assets.

TDS under section 194I shall apply even if the payee does not own the above mentioned assets.

There is no TDS on refundable deposit like if the landlord collects security deposits which will be refunded at the time of vacating the building then on such payment no TDS to be deducted under section 194I.

If rent is credited to a suspense account or any other account then also TDS to be deducted on that rent.

Who is liable to deduct TDS on rent section 194I?

Under section 194I of TDS on rent payment, TDS is to be deducted by:

Person (other than individual or HUF)

Person (other than individual or HUF), if making payment of rent to a resident then that rent in a financial year exceeds the threshold limit under section 194I.

Individual or HUF

Individuals or HUF is required to deduct TDS if they are required to get their accounts audited under section 44AB and the rent in a financial year exceeds the threshold limit under section 194I.

Also Read: Section 194M: (TDS on Payment to Contractors and Professionals)

What is the threshold limit under section 194I?

TDS to be deducted in case if the aggregate amount of rent credited / paid or likely to be credited / paid during the financial year exceeds Rs.2,40,000.

This limit includes advance rent and arrears of rent. So if rent paid to a resident exceeds Rs.2,40,000 in a financial year in aggregate then TDS is required to be deducted.

When to deduct TDS under section 194I?

TDS to be deducted on rent payment to a resident

At the time of credit amount to the account of the payee; or
At the time of payment;

whichever is earlier.

Note: Payment can be through cash, by issue of cheque or draft or by any other mode.

What is the rate of TDS on rent payment?

Rent in connection with

TDS Rate

TDS on rent of Machinery, Plant or Equipment

[1.5% w.e.f. 14-05-2020 to 31-03-2021]

TDS on rent of Land, Building or Furniture & Fixture

10%

[7.5% w.e.f. 14-05-2020 to 31-03-2021]

Note:

If PAN is not quoted by the deductee then TDS is deducted at the rate 20%.
TDS is deducted as basic rate (No surcharge and Health & Education Cess shall be added)

Also Read: Section 271AAD: (Penalty for Fake Invoices / False Entry)

What happens when an asset is owned by co-owners?

If the asset is owned by co-owners then the limit of Rs.2,40,000 will be applicable on each co-owner separately.

Example:

If building is owned by “Mr. A & Mr. B” and Mr. X pays the rent of building to “Mr. A & Mr. B” then the limit of Rs.240000 is to be calculated for each co-owner separately i.e. for both Mr. A & Mr. B.

Suppose if rent paid in a financial year to Mr. A exceeds Rs.240000 but payment to Mr. B does not exceed the limit then TDS to be deducted on payment to Mr. A and there is no TDS on payment to Mr. B.

Analysis of certain payments covered u/s 194I or not?

Service charges

Service charges included in rent hence it is covered under section 194I.

Cold storage facility

In cold storage facilities there is an agreement between customer and cold storage owner for providing cooling facilities like storage of milk, ice cream and vegetables. Hence this is contractual in nature and TDS is to be deducted u/s 194C and not under 194I.

Generator

TDS on generator rent covered in section 194I.

Payments to Hotel

Payments for hotel accommodation on regular basis are covered under section 194I.

But if only catering / meal charges in hotels then section 194c will apply on catering services and not section 194I.

Payment to Government

Person making payment to the government is not required to deduct TDS.

Lounge services

Payment for the use of lounge space at the airport is not to be tax under section 194I. This service is provided for a comfortable and clean place for customers. Here section 194c will apply.

Other Point

TDS to be deducted under section 194I without including GST.

Under section 194I, if the rent payment is on monthly basis then TDS has to be deducted on monthly basis.

And if it is on quarterly or yearly basis then TDS has to be deducted accordingly.

Also Read: TDS on Purchase of Immovable Property (Section 194IA)

Conclusion

Section 194I of Income Tax Act applies for TDS on Rent payment above 240000 at the rate of 2% & 10% and reduce rate [1.5% & 7.5% w.e.f. 14-05-2020 to 31-03-2021] with certain condition on House Property, Land, Furniture & Fixture, Plant & Machinery.