Introduced by the Finance Act, 1994, the Section 194-I states that any person, whether an individual or H.U.F. who receives rent as income is liable for a tax deduction at source when the income credited is more than Rs.1,80,000 in the financial year.
Terms and Conditions of TDS on Rent:
- There is no surcharge levied on TDS on rent except where a foreign company is involved and the payment is above Rs.1 crore.
- For TDS deduction, PAN card number of the landlord or the person receiving rent, is required to be given to the payee. If it is not shared, TDS on rent is deducted at 20% under Section 206AA.
- TDS on rent does not charge any Secondary and Higher Education Cess or Education Cess.
- If the tenant pays ground rent, municipal taxes, etc., there is no TDS charged on those amounts.
- While TDS is charged on non-refundable deposits made to the landlord, serving as security deposit for using the asset, no TDS is deducted from refundable deposits.
- For hotel accommodation, where payment is made on regular basis, TDS is levied.
Different Cases for TDS:
Tax is deducted at different rates for different assets such as factory, furniture, building, hotel etc.
Rent from Factory Building: When a factory building is given on rent, the rent is taken from the owner of the factory or the lessor. In some cases, lessor receives it as income from property. In these cases, the rent is considered to be business income to lessor, which will require him or her to pay an advance tax, returning the income from rent as there will be deduction of tax at source.
Rent from Furniture or Building by two individuals: When the building and furniture is let out by two different individuals, the tax is deducted only from the building rent.
Rent from Cold Storage Facility: Cold storage facilities where ice cream, vegetables or milk are stored, are considered as a plant and not charged as per building rent.
Rent from Hotel holding Seminars with Meals: When hotels do not charge for using the premises but only for catering or food, then tax is deducted at source. While for catering, Section 194C is applied.
Service Charges Payable to Business Centres: Service charges that are paid to business centres are also considered as rent.
Tax Deduction as per Rent Period: It is not mandatory that tax is deducted always on a monthly basis. It depends on the rent period and deducted as per that. For example, if the rent is yearly, tax deduction is also done every year.
Hall Rented by an Association: If an association rents a hall, tax is deducted if the rent charged for it is higher than Rs.1,80,000.
TDS on Advance Rent:
In cases where advance rent is paid to the landlord, TDS will be deducted. However, there are certain exceptions for TDS calculations such as:
- When the advance rent crosses over one financial year, the TDS charged is in proportion with the income based on the Form 16 issued for the total advance rent.
- In case of asset transfer or it being sold to another individual, the TDS credit on rent that has not been availed till the transfer or sale is made, should be credited to the new owner.
- In case the advance rent is already paid and TDS deducted and later there is a cancellation of the rent agreement, the balance amount is refunded to the tenant. The CBDT has stated that in such cases, the landlord should mention the cancellation of rent agreement in the ITR form submitted for TDS deduction.
- TDS certificate in case of payments apart from salary must be issued every quarter in the form of Form 16A.
Tax Deduction Rates:
Rates of tax deduction depends on the nature of payment and is listed below:
- Rent of machinery, equipment or plant - 2% TDS
- Rent of land, furniture, fitting or building to HUF or individual – 10% TDS
- Rent of land, furniture or building to other than HUF or an individual – 10% TDS
No TDS Cases:
There are certain cases where there is no tax deduction at source, they are:
- Amount paid or payable not more than Rs.1,80,000 in the fiscal year: If the amount of rent paid to the landlord or lessee in the financial year is not higher than Rs.1,80,000, no tax is deductible.
- Paying a Government Agency: Section 196 states that no tax is required to be deducted at source when any amount is paid to a government agency. According to Section 10 (20A), an amount charged for housing accommodation or development, planning or improvement of towns, villages and cities in the country is exempt of any tax deduction at source. If rent of any kind is payable to a government agency, local or statutory authorities, tax deduction at source is not applicable as per clause (20) or (20A) of Section 10.
- Individual Tenant or Hindu Undivided Family: Section 194I claims no tax deduction from amount payable or to be paid by an H.U.F. or an individual if the individual or H.U.F. is not involved in any profession/business or if the individual or H.U.F was not liable to tax audit in the preceding financial year.
- When Proceeds are shared by a Film Exhibitor and Distributor owning a Cinema Theatre: According to Section 194-I, when proceeds are shared between a film exhibitor and distributor who own a cinema theatre, there are no such charges levied. Reason being that the cinema hall is not being let out by the exhibitor to the distributor and that the exhibitor’s share is from composite services.
TDS – Exclusive of Service Tax:
Service Tax on TDS is applicable only if the total amount being received from more than one sources in the financial year is greater than Rs.10 lakh. The Service Tax will be inclusive of Cess. However, it is important to remember that service tax will only be computed on the actual rent and not on the service tax to be paid.
Refund from TDS:
While filing income tax return, the tax payee can claim TDS as credit and pay only the difference between the actual amount of tax payable as calculated based on the income tax slab rates and the TDS deduction made on rent. However, you can always claim for a tax refund in case the TDS deducted was more than computed.
Form 15G – Nil/Lower TDS Deduction:
At the 2016 budget, an amendment was introduced where in cases there is Nil Tax applicable on the individual’s income who is receiving rent as income, Form 15G or Form 15H for non-deduction of TDS can be filed.
FAQs on TDS on Rent:
Will tax be deducted from Service tax added in my rent?
No, service tax is not considered as a part of income of the landlord. Therefore, under Section 194-I, tax is deducted without including the service tax.
If my rent goes to towards the government, will there be still tax deduction at source?
No, when rent is paid to a government agencies and entities, no TDS is charged.
If my rent is more than Rs.2,00,000, will I be charged TDS from my rent?
Rent amount above Rs.1,80,000 is liable for tax deduction at source under the Section 194-I of the Income Tax Act.