Section 194I deals with TDS on rent paid.
Whenever a person is liable to pay an amount exceeding the specified limit for rent, he will deduct TDS at specified rates under section 194I.
For Example, Mr. A pays rent to Mr. B of Rs. 45,000 per month during the year. Mr. A will deduct TDS on Rs. 45,000 and pay the balance amount to the Mr.B.
But don’t worry section 194I is not applicable for every person. It is applicable for some specified persons and the amount payable must exceed the specified monetary limit.
Transactions for which 194I is applicable
Note: (i) “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,—
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
whether or not any or all of the above are owned by the payee;
Whether security deposit paid by tenant is attract the provision of TDS deduction?
If the security deposit received by the owner at the time of rent agreement which is refundable at the end of the agreement. in that case, the tenant is not liable to deduct TDS on the amount of security deposit. if the security deposit is not refundable then the TDS is deducted on that amount. however advance rent is subject to TDS deduction.
When TDS Under Section 194I is deducted?
TDS under section 194I shall be deducted at the time of credit of such sum to the account of payee or at the time of actual payment, whichever is earlier.
Note: Even if a person is crediting in his books the amount to suspense account, he will be liable to pay TDS from that day onwards.
Who are persons liable to pay TDS under Section 194I?
The Following persons are liable to pay TDS under section 194I.
- All persons except Individuals and Hindu Undivided Family (HUF).
- Individuals and Hindu Undivided Family (HUF) are liable to deduct tax under section 194I only if the total sales, gross receipts or turnover from business or profession exceed one crore rupees in case of business or fifty lakh rupees in case of profession in the immediately preceding financial year.
- If the individual and HUF not liable to tax audit, but the rent paid by them is exceeding Rs. 50,000 p.m. then they are liable to deduct tds.
[Ref: Budget highlights In Income tax portal]
In section 194-I of the Income-tax Act, in the second proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession” shall be substituted.
What is the rate of TDS under section 194I?
The TDS rate under section 194I is divided into three parts.
- 2 % for the use of any machinery or plant or equipment; and
- 10% for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:
- 5% for individual and HUF, not liable to Tax audit but rent paid exceeds Rs. 50,000 p.m.
No surcharge and Cess is applicable.
In the above example Rs.4500 will be deducted by Mr. A from the total sum payable.
- TDS is always deducted on basic part excluding the GST tax part.
- There is reduced rate due to Covid-19 the rate on Plant and Machinery is 1.5% , Immovable property is 7.5% (Period from 14.05.2020 to 31.03.21) and for individual and HUF not liable to tax audit, is 3.75%.
What is the monetary limit for TDS under section 194I?
TDS is not deducted if the amount payable does not exceed Rs. 2,40,000 in the financial year to the same person.
In the above example Mr. A is liable to deduct TDS since the amount payable may exceeds Rs. 2,40,000 for whole year.
Earlier, the monetary limit is Rs.1,80,000 which is increased to 2,40,000 w.e.f financial year 2019-20.
When TDS on rent is not deductible?
- If the TDS amount not exceed the monetary limit of Rs.2,40,000, then the payer is not liable to deduct TDS.
- If the individual and HUF is not liable to tax audit u/s 44AB, then there is no need to deduct TDS on the amount of rent payable.
- When the rent is paid to the government. TDS is not deduct by the payer
- When film exhibitor and the film distributor sharing the proceeds of film exhibition, the share of film distributor does not attract the TDS compliance because the film distributor does not make an agreement for lease or sub lease the threatre.
What is the proof of TDS deducted under section 194I?
The deductor (person deduction TDS) will issue TDS certificate to the Deductee in Form No. 16A.
Read here the full details on Form 16A.
What is the rate interest rate for late payment of TDS
Read here the Interest on late payment of TDS u/s 201: calculation with example.
Please comment for queries on section 194I.