TDS on Rent - Section 194I, 194IB & 194IC Under Income Tax Act

TDS on rent in India is governed by Section 194I of the Income Tax Act. Section 194I defines "rent" broadly, encompassing payments made under any lease, sub-lease, tenancy, or agreement for the use of land, buildings, plant, machinery, equipment, furniture, fittings, or land attached to a building, regardless of the payee's ownership. Sub-letting also qualifies as a rent payment under section 194I. Because rent is a significant income source, it's taxable. To ensure compliance, individuals must deduct and deposit TDS on rent correctly and within the timelines specified under Section 194I of Income Tax Act.

In India, many individuals and Hindu Undivided Families (HUFs) invest in property, either to sell it later at a higher price or to generate rental income. For many, this rental income is a significant part of their overall income. Consequently, the government introduced Section 194I of the Income Tax Act, mandating deduction of TDS on rent.

Who needs to deduct TDS on rent under Section 194I of the Income Tax Act?

• Generally, anyone paying rent to a resident Indian is required to deduct TDS on Rent under Section 194I of Income Tax Act.. However, there are some exceptions:
• Individuals and Hindu Undivided Families (HUFs): Individuals and HUFs are generally not required to deduct TDS on rent under Section 194I of Income Tax Act unless they are subject to a tax audit. However, Individuals and Hindu Undivided Families (HUFs) required to undergo a tax audit under Section 44AB of the Income Tax Act (due to a business turnover exceeding Rs. 1 crore or professional income exceeding Rs. 50 lakhs) must also deduct TDS under section 194I of Income Tax Act.
• Payments to the Government: No deduction of TDS on Rent under Section 194I of Income Tax Act is required if the rent is paid to the government or certain government-related entities.
• Form 15G/15H-Individuals who believe their total income falls below the taxable limit can submit Form 15G (for those under 60) or Form 15H (for senior citizens) to the payer. This self-declaration informs the payer that TDS deduction is not necessary, provided the conditions are met.

What types of rent are covered under Section 194I of the Income Tax Act?

The term "rent" under Section 194I is broad and includes payments for:

• Land
• Buildings (including factory buildings)
• Land appurtenant to buildings
• Plant and machinery
• Equipment
• Furniture and fittings

What are the rates of TDS deducted on Rent under Section 194I of the Income Tax Act?

The TDS rate is considered based on the type of asset which is rented:

• 10%: For rent paid on land, buildings (including factory buildings), furniture, and fittings.
• 2%: For rent paid on plant and machinery.

When is TDS deducted on Rent under Section 194I of the Income Tax Act?

TDS on rent under Section 194I is deducted at the time of payment or credit, whichever is earlier. This means that if the rent is credited to the landlord's account before it is actually paid, TDS must be deducted at the time of credit.

What is the threshold limit for TDS deducted on Rent under Section 194I of the Income Tax Act?

TDS is only required if the annual rent exceeds ₹2,40,000. This means that if the total rent paid or payable in a financial year is less than ₹2,40,000, no TDS is required.

Consequences if TDS is not deducted or deposited?

Failure to deduct TDS or deposit it with the government can result in penalties, including interest charges and fines.

Section 194IB of Income Tax Act-

Section 194IB of the Income Tax Act in India deals with Tax Deducted at Source (TDS) on rent payments made by individuals and Hindu Undivided Families (HUFs) who are not subject to tax audits. Here's a breakdown of the key provisions:

• Applicability:

This section applies to individuals and HUFs who pay rent exceeding ₹50,000 per month to a resident Indian landlord.

It specifically targets those not liable for tax audits under Section 44AB. Businesses and individuals already subject to audit fall under Section 194I.

• TDS Rate:

The TDS rate is 5% of the rent amount if the landlord provides their Permanent Account Number (PAN).

The TDS rate is 20% in case the landlord does not provide their PAN.

Section 194IC of Income Tax Act-

Section 194IC of the Income Tax Act in India deals with Tax Deducted at Source (TDS) on payments made to a resident contractor for the transfer of immovable property. This section applies specifically to payments made under a joint development agreement. Here's a breakdown:

• Applicability:
• This section applies to any person responsible for paying any sum to a resident contractor under a joint development agreement, where the consideration includes the transfer of immovable property. It's crucial to understand that this applies only to joint development agreements.

What is a Joint Development Agreement?

A joint development agreement is an agreement between a landowner and a developer where the landowner contributes land, and the developer undertakes construction on it. The resulting constructed area is then shared between them in a pre-agreed ratio.

When is TDS deducted?

TDS under Section 194IC is deducted at the time of payment to the contractor. This is different from some other TDS sections where deduction occurs at the time of credit or payment, whichever is earlier.

• TDS Rate:

The TDS rate under Section 194IC is 10% of the payment made to the contractor.

• No Threshold Limit:

There is no threshold limit for deduction under Section 194IC. TDS must be deducted on any payment made to the contractor under a joint development agreement, regardless of the amount.

Time Limit to Deposit TDS deducted on Rent under Section 194I of the Income Tax Act-

The time limit for depositing TDS deducted on Rent under Section 194I of Income Tax Act generally falls on the 7th day of the month subsequent to the month when the TDS was deducted meaning, TDS that is deducted in June should be deposited by July 7th. However, an exception is made for TDS deducted in March, which should be deposited by April 30th.

When TDS is deducted on rent under Section 194IB, the payer must submit Form 26QC, which acts as both the payment challan and the TDS deduction statement. This form is due within 30 days of the end of the month in which the TDS was deducted.