TDS on Rent

Under Income Tax, any person paying rent to another person is liable to Deduct Tax if certain conditions are being satisfied. Further in certain cases if payment is being made to acquire property then TDS shall also be deducted. Under TDS provisions of income tax act, Section 194I and sub-sections of 194I provides conditions to deduct TDS while making “payment of rent” or “payment against acquisition of property” however compulsory acquisition of property is deal by separate section which is 194LA.  Under 194I and its subsection there are four rates of TDS are prescribed which are 1%, 2%, 5% and 10%.  Let’s analyse all the provisions of TDS relating to rent and payment for property under income tax act:

We will discuss all sub-sections of section 194I one by one:

TDS on Rent of Land Building and Plant Machinery

  • Section 194-I of Income Tax act:

Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax.

Section 194-I further sub-categorised into sub-section 194I(a) and 194I(b) to prescribed applicable rate of tax on payment of rent:

  • As per section 194I(a), rate of TDS would be 2% if rent is for use of machinery or plant or equipment
  • As per section 194I(b), rate of TDS would be 10% if rent is for use of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings

Threshold Limit:

TDS u/s 194I(a) and 194I(b) shall not be deducted if amount paid to payee is less than 2,40,000 in a financial year.

Important point relating to TDS on Rent u/s 194-I

  • Individual and HUF shall also be liable to deduct TDS if they are liable to Tax Audit u/s 44AB of Income Tax Act.
  • Threshold limit of INR 2,40,000 is applicable for “a payee of rent for a financial year” and it may be for use for Plant, Machinery and/or Land, building. For example if total rent paid during FY 2019-20 to Mr. A is 3,00,000 having bifurcation of INR 1,60,000 for Plant & Machinery and 1,40,000 for Building then TDS would be liable for deduction at INR 3,00,000.  Further If Mr. B paid rent of INR 1,80,000 to Mr A and INR 80,000 to Mr. C then TDS shall not be applicable as rent amount does not exceeds to INR 2,40,000 for single payee.
  • While calculating threshold limit of INR 2,40,000 GST charged by payee shall be excluded and whenever liability arise to deduct TDS, TDS shall be deducted on amount paid to payee without including GST component.
  • It’s not essentially required that payee must be owner of property, If payee is not the owner of property then also TDS shall be liable to deduct u/s 194I.

TDS on Sale of Property

TDS on Rent paid by Individuals or HUF

  • Section 194IB of Income Tax act

Any person, being an individual or a Hindu undivided family (HUF), responsible for paying to a resident any income by way of rent exceeding INR 50,000 for a month or part of a month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon.

Analysis of Section 194IB:

This section is applicable when following conditions are being satisfied:

  • Payer is Individual or HUF
  • Payee is resident, it may be individual, HUF or any other
  • Amount is being paid for rent
  • Monthly rent exceeds from INR 50,000

If all the above mentioned conditions are satisfied then tenant is required to deduct TDS at 5% on the entire consideration paid. However tenant is not required to make TDS payment on monthly basis and can make payment entire TDS payment in one go by 30th april of next financial year.

Example on TDS u/s Section 194-IB:

Let’s assume Mr. V is paying rent of INR 75,000 per month to Mr. C. Rent Agreement was executed on 30th September 2019 and become effective on 1 October 2019. During the financial year 2019-20 Mr. V paid rent of INR 4,50,000. As per section 194IB, Mr. V is liable to deposit TDS at 5% on 4,50,000 by 30th April 2020.

Further Mr V is liable to file TDS return in Form 26QC by 30th of April 2020. Mr. V is also responsible to issue form 16C (TDS Certificate) to Mr. C.

TDS on Joint Development Agreement

  • Section 194IC of Income Tax act: 

Notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 10% of such sum as income-tax thereon.

Analysis of section 194-IC:  
  • “”specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash;
  • Payer can be any person it may be company, individual or someone else.
  • Payee should be individual or HUF
  • Consideration or part of consideration should be other than kind (Cash or Bank transfer)

If all the above mentioned conditions are being satisfied then whatever consideration (other than kind) is being paid to Individual or HUF on account of Specified agreement or Joint Development agreement is liable for TDS at 10%.

Example on TDS under section 194IC:

Builder V made an agreement with Property owner C to build their partly build property into High Rise Building. After construction of High Rise Building, property owner will get 3 flats and INR 40,00,000 through bank transfer. As per section 194IC builder is liable to deduct TDS at 10% on INR 40,00,000 while making payment to property owner.

We hope you have finds the answer of all your queries relating to TDS on Rent and Property.

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