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TDS on Rent

Deduction Under Section 194I

Last Updated 12th Jul 2020

Sections TDS Rate
194-I TDS on rent of Plant & Machinery 2%
194-I - TDS on rent of land, building, furniture or fitting 10%
194-IA 1%
194-IB 5%
  • A standard deduction of ₹ 50,000 is available for all individuals under the Income Tax Act.
  • TDS on rent is applicable if the rent limit exceeds ₹ 2,40,000.
INCOME TAX CALCULATOR

Section 194I – TDS on Rent 2020

The section 194I of the income tax act is related to the deduction of TDS on rent of Plant and machinery, land, building, furniture or fitting. As per this section, individuals paying rent on the above mentioned can avail rental TDS deductions. The TDS deduction is applicable when the amount of rent exceeds ₹ 2,40,000 per financial year. Earlier the limit on rent for TDS deduction was set at ₹ 1,80,000, however, with effect from the financial year 2019-2020 the TDS rent limit has been increased to ₹ 2,40,000. As per the section 194i of the income tax act, the TDS deduction does not apply to the security deposit of the rent.

Define Rent under Section 194I

The section 194I of the income tax act defines rent as per the following as a payment made as per any tenancy agreement, lease, sub-lease for using any of the following:

  • Land
  • Plant and Machinery
  • Building
  • Equipment
  • Furniture
  • fitting

The term ‘rent’ as per the provision is inclusive to the above mentioned whether solely owned or not. Further, the rent from the payee can also be collected for sub-letting.

TDS Rates on Rent u/s 194-I and 194-IB

Type of Rent TDS Rate Section of IT Act Explanation
Rent paid towards commercial/ industrial premises 10% 194-I Tax to be deducted and deposited monthly
Rent paid towards residential premises leased by non individual entities like companies 10% 194-I Tax to be deducted and deposited monthly
Rent paid towards residential premises leased by salaried and self employed individuals 5% 194-IB Tax to be deducted and deposited once at end of financial year or end of lease; TAN not required

Tax Deducted on Rent u/s 194-I at 10%

  • Any entity (including companies, firms, partnerships) or individual/ HUFs subject to tax audit paying rent of more than ₹ 15,000 on 20th March 2017. He had purchased the scheme ₹ 10,000 on 10th March 2014. What will be his capital gains tax liability? Mr. A earns a capital gain of ₹ 2,40,000 in a year is liable to deduct TDS on such payments
  • Tax is to be deducted on rent paid towards any type of premises – residential, commercial, shop or industrial
  • Rental TDS needs to be deducted with each rental payment and deposited to the government account every month
  • In case service tax or GST is levied on rental by the owner, TDS is to be deducted only on the rent amount and not on service tax or GST amount

Tax Deducted on Rent u/s 194-IB at 5% - for salaried and self employed individuals

Tenants paying rent of ₹ 15,000 on 20th March 2017. He had purchased the scheme ₹ 10,000 on 10th March 2014. What will be his capital gains tax liability? Mr. A earns a capital gain of ₹ 50,000 (Rupees fifty thousand) or more per month required to deduct tax at 5% of rental amount

  • Tax can be deducted and deposited in a single installment at the end of the financial year or at the end of the lease period, whichever is earlier
  • Tenant, after deducting and depositing the tax, must download TDS certificate (Form 16A) from TRACES website and provide the same of the owner
  • Unlike other tax deductors, as per section 194ib in case of individuals deducting tax on rent, there is no requirement to register as a deductor with the income tax department and obtain a TAN number. Using its PAN, the tenant can deposit the rental TDS and generate Form 16A from TRACES

Income Tax Update: Budget 2020

  • No Income tax for individuals with Annual Taxable Income of upto ₹ 15,000 on 20th March 2017. He had purchased the scheme ₹ 10,000 on 10th March 2014. What will be his capital gains tax liability? Mr. A earns a capital gain of ₹ 5 Lakh.
  • Option to the taxpayer to choose either the old income tax rate and slabs or the new income tax rates and slabs.
  • New tax slabs offer a reduction in applicable tax rate from 20% to 10% and from 30% to 20% in certain cases.
  • In case the taxpayer opts for new slabs and rates, no exemption or deduction can be claimed such as those on account of house rent allowance (HRA) investments, LIC premium, school fees, mediclaim etc.
  • TDS of 2% on cash withdrawals of more than ₹ 15,000 on 20th March 2017. He had purchased the scheme ₹ 10,000 on 10th March 2014. What will be his capital gains tax liability? Mr. A earns a capital gain of ₹ 1 Cr per year from a bank account in order to discourage business payments in cash.
  • Deduction of ₹ 15,000 on 20th March 2017. He had purchased the scheme ₹ 10,000 on 10th March 2014. What will be his capital gains tax liability? Mr. A earns a capital gain of ₹ 1.50 Lakh for interest earned on a home loan that is availed for purchase of an affordable house. The date for this has been extended to 31st March 2021.
  • Income tax deduction of ₹ 1.50 Lakh for interest on loan availed to buy an electric vehicle.
  • The corporate tax reduced to 25% with an annual turnover of ₹ 400 Cr.
  • Excise Duty on fuel hiked by ₹ 10 per litre on petrol and ₹ 13 per litre on diesel.

FAQs

What is the rate of TDS on rent?

The TDS rate on rent of a plant and machinery is 2%, whereas the rent on the land, building, furniture and fitting is 10% as per section 194I of the income tax act. This rate is applicable for the non-individuals. However, for individuals and HUFs, the TDS rate is 5%.

Should TDS be deducted on rent?

The TDS deduction on rent is a compulsory provision under section 194I of the income tax act. The section states that if the rent on a building, land, furniture, fitting or plant and machinery exceeds ₹ 2,40,000, then rental TDS has to be deducted. The provision was introduced to cover rent as a source of income for TDS deduction.

How is TDS on rent calculated?

The TDS on rent is calculated if the payment of rent exceeds ₹ 2.40 Lakh. The payments are to be made for the use of any land, building, fitting or furniture, under ownership, lease, and sub-lease. Even hotels and accommodations can cut TDS from payments if the rent limit or cost to the hotel exceeds ₹ 2.40 Lakh. A TDS rate of 10% is liable for TDS deduction for rent paid by non-individuals as per section 194i of the income tax act; however, it is 5% for individuals and HUFs as per section 194ib.

What if TDS is not deducted on rent?

If the rent amount per financial year exceeds ₹ 2.40 Lakh, then TDS deduction is mandatory as per section 194I of the Income-tax act. If the TDS is not deducted on the tax, then a penalty of 1% is applicable per month until the TDS is deducted.

Who pays TDS on rent?

As per section 194I, all individuals, whether salaried or self-employed, non-individuals like companies, trusts, associations, etc. and HUFs, are liable for TDS deductions on rent. The TDS rate for non-individuals is 10%; however, it is 5% for individuals and HUFs as per section 194ib of the Income-tax act.


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