TDS on Rent Under Section 194-I – Check Its Importance, Conditions & Exemption

You may already know that a rental income or the money earned from renting a property is subject to TDS or tax deducted at the source. So, individuals are required to pay tax on the income earned by renting out a property.

Section 194-I of the Income Tax Act discusses this aspect of TDS on rent. It defines how taxpayers should deduct TDS on income earned from rent. Thus, section 194-I concerns individuals who earn income in the form of rent by leasing their property. Since rent is an added income received by people who already earn income as salary or through business, rent income is taxed.

This post discusses TDS levied on rent earned on land, houses, shops, furniture, fittings, machinery, etc.

What Does Section 194I Imply?

Section 194I states that a person who pays rent is subject to a TDS deduction, which is imposed if the rent received in a particular financial year is more than INR 1,80,000. However, this amount was later changed to INR 2,40,000 per year with effect from 1st June 2017.

For section 194-IB, this limit is at a 5% rate of the total rent received when the rent income is above INR 50,000. Here, you may note that the rent paid to government organizations gets TDS exempted.

Also Read: Form 15G, Form 15H to Save TDS on Interest Income

Objectives and Importance of Introducing TDS under Section 194I?

The government introduced the provision of rent on TDS to control income earned as rent under TDS. People in India generally invest in property to earn extra income. Most people buy property to sell it at a later date at an appreciated rate. Some even rent the property out for a long time to receive continued extra income. This makes rent a major constituent of income for many.

This made the introduction of section 194I important. Hence, the government introduced section 194I regarding tax deductions at source on rent under the IT Act of India.

TDS on Rent – Some Conditions 

• Generally, no surcharge is imposed on the TDS for rent. However, if a foreign company is involved and rent payment is beyond INR 1 crore, a surcharge may be levied.
• A PAN number is required for TDS deduction. Here, the PAN of the person receiving the rent or the landlord has to be given to the payee.
• Without PAN information, TDS is deducted from rent under Section 206AA at 20%.
• No Education Cess is charged on the TDS on rent.

Understand ‘Rent’ Under Section 194-I?

As per the definition offered on the official website of the Income Tax Act Department, ‘Rent’ under section 194-I means a payment under any lease, sub-lease, or agreement, etc., for the use of any:

• land or
• Building including factory, or
• Machinery or
• Furniture or
• Fittings or
• Plant or
• Equipment, etc.

It is important to note that money received as advance payment or security by the landlord while leasing a property on the condition of returning the money at the time of vacating the property is not considered income, and hence, no TDS is deducted on that money under 194-I. However, if the advance paid is non-refundable, the amount is subject to a tax deduction.

What is the 194-I TDS Rate?

Payments that Come Under Section 194I

• Payments made to hotels for hosting seminars, etc.
• Payments made to cold storage conveniences
• Hall rent paid by associations
• TDS on rent if it is not paid every month
• Income or rent earned from leasing out a factory space
• Service charges paid to business centers
• Rent on furniture, etc.

Exemptions Under Section 194I

Under the below cases, TDS on rent is not applicable:

• When the rent amount paid or to be paid is below INR 2,40,000 in a financial year
• When the rent is paid to a government body/agency
• If the rent earnings are shared by a person who owns a movie theatre
• TDS is also not applicable if it is for an individual tenant or HUF

Under the below cases, TDS is applicable without Service Tax:

• Service tax on TDS is levied in case the total rent from one or many sources in a given fiscal year is more than INR 10 lakh. Service tax in most cases includes cess.
• Service tax is generally calculated on the accumulated rent and not on the amount of paid service tax.

Under the below cases, TDS is applicable with Nil or lower TDS Deduction:

• To have zero TDS on rent, entities can file Form 15G or 15H in case the individuals receiving rent have no other source of income.

Besides the above, entities can claim TDS at the time of filing ITR. Also, they can claim a TDS refund if the tax deducted at the source was more than the calculated amount.

TDS on Advance Rent

When a landlord receives an advance rent, the payment comes under the scrutiny of tax or TDS deduction. However, there are some exceptions on advance rental TDS calculations, as mentioned below:

• Under conditions when the advance rent goes beyond the next FY, the TDS paid should be at par with the income mentioned on Form 16 for aggregate advance rent payment.
• In case of asset transfer due to the sale of property to another person, the TDS credit is termed available only when the property transfer amount is credited to its new owner.
• Also, in case of rent agreement cancellation after paying the advance rent and subsequent TDS deduction, the balance amount is refunded to tenants. The landowner is required to inform of such cancellation in the ITR form submitted for TDS deduction.
• A TDS certificate must be issued for each quarter under Form 16A for payments other than salary.

Also Read: How to Save or Reduce TDS on Salary

Consequences of Not Paying TDS u/s 194I 

If TDS is not deducted, the individual is likely to pay interest at the rate of 1% per month from the tax-deductible date to the date when the tax is actually deducted.

Alternatively, if a taxpayer deducts TDS but does not deposit the same to the government. They have to pay interest at a rate of 1.5% per month from the TDS deducted date to the tax deposited date.

Popular General Insurance Companies India, 2024

Related Articles

• Union Budget 2024-25 Date, Highlights and Expectations
• Paybima Insurance Trend Report 2024
• Claim Deduction & Eligibility for 80DD
• Section 80CCD(1B) of Income Tax
• Donations Eligible under 80G and 80GGA
• What is Form 26AS?
• Income Tax Act Section 10
• How to Register & Login on the TDS TRACES Website?

Other Investment Products

GRP Plan ULIP Plans Child Plans Pension Plans Money-Back Plan Endowment Policy