Rent, a regular financial commitment, includes payments for leasing, tenancy, sub-leasing, or arrangements involving properties such as land, buildings, machinery, plants, furniture, or fittings. To ensure tax compliance, rental income falls under the Tax Deducted at Source (TDS) mechanism through Sections 194I, 194IB, and 194IC of the Income Tax Act.
Overview of Relevant Sections:
- Section 194I - TDS on Rent
- Section 194IB - TDS on Rent Paid by Specific Individuals or HUFs
- Section 194IC - TDS on Payments Under Certain Agreements
TDS on Rent - Key Aspects
TDS applies to rent payments exceeding prescribed limits. Under Section 194I, TDS is applicable when annual rent payments surpass Rs. 2,40,000. This applies to individuals or Hindu Undivided Families (HUFs) not subject to tax audit under Section 44AB.
Section 194I - TDS on Rent
Section 194I mandates TDS deduction on rent payments made to resident Indians when exceeding Rs. 2,40,000 annually. Rent includes payments for land, buildings, machinery, offices, furniture, and fittings. This provision aims to curb tax evasion on rental income.
Who Needs to Deduct TDS Under Section 194I?
Entities such as companies, firms, trusts, and individuals or HUFs covered under Section 44AB must deduct TDS when making rental payments.
TDS Rates and Deduction Timing
- 2% for machinery, plant, or equipment.
- 10% for land, buildings, furniture, or fittings.
TDS must be deducted at the earlier of:
- When rent is credited to the payee’s account.
- When actual payment is made via any mode.
Exemptions and Special Cases
- No TDS applies if rent payments are below Rs. 2,40,000 annually.
- Payments to specific business trusts or real estate investment trusts are exempt.
- Refundable security deposits do not attract TDS unless adjusted as rent.
- Warehousing charges are subject to TDS.
- Rent paid under long-term agreements, including business center leases, is liable for TDS.
Section 194IB - TDS on Rent by Certain Individuals and HUFs
This section applies to individuals and HUFs not requiring a tax audit under Section 44AB but paying rent exceeding Rs. 50,000 per month to a resident.
Who Must Deduct TDS?
Individuals or HUFs paying rent above Rs. 50,000 per month must deduct TDS under Section 194IB.
TDS Rate and Deduction Timing
- 2% (revised from 5% effective October 1, 2024).
- 20% if the payee’s PAN is unavailable.
- 10% if the recipient falls under Section 206AB.
TDS must be deducted at the earlier of:
- When rent is credited (for the last month of the financial year or tenancy period).
- When rent is paid via any mode.
Exemptions
- No TDS applies if the monthly rent is Rs. 50,000 or lower.
- No requirement for a Tax Deduction Account Number (TAN) to deduct TDS under this section.
Section 194IC - TDS on Payments Under Joint Development Agreements
This section regulates TDS on payments made under Joint Development Agreements (JDA), where a landowner and developer collaborate on a project.
Who Must Deduct TDS?
The developer or any party making payments to the landowner under the JDA must deduct TDS.
TDS Rate and Deduction Timing
- 10% of the payment amount.
- 20% if PAN is unavailable.
TDS is deducted at the earlier of:
- When the payment is credited to the payee’s account.
- When the payment is actually made.
TDS Deposit and Compliance
TDS must be deposited by the 7th of the following month, except for March, where the deadline is April 30th. For rent payments under Section 194IB, Form 26QC must be filed within 30 days from the end of the month in which TDS was deducted.
Late Payment Consequences
- Section 201(1A) - Interest of 1% per month for late deduction and 1.5% per month for late payment.
- Section 234E - Late filing penalty of Rs. 200 per day, up to the TDS amount.
- Section 271H - Penalty ranging from Rs. 10,000 to Rs. 1,00,000 for non-filing or incorrect filing of TDS returns.
TDS on Rent by Individuals, HUFs, and NRIs
|
Rent Payer |
TDS Rate |
Threshold Limit |
|
Companies, firms, trusts, and individuals or HUFs covered under tax audit |
10% |
Rent exceeds Rs. 2.40 lakh annually |
|
Individuals or HUFs not covered above |
5% |
Rent exceeds Rs. 50,000 per month |
TDS on Rent Paid to Non-Resident Indians (NRIs)
Under Section 195, rent payments to an NRI landlord attract 30% TDS, subject to tax treaty benefits allowing a lower deduction.
How to Pay TDS Online?
TDS can be paid online via the official income tax portal. Offline payments require submitting challans at designated bank branches.
Recent Budget Updates (Effective April 1, 2025)
- TDS threshold on rent raised from Rs. 2.4 lakh to Rs. 6 lakh per year.
- TDS threshold on senior citizens’ interest income increased from Rs. 50,000 to Rs. 1,00,000 per year.
Conclusion
TDS on rent ensures tax compliance and prevents rental income tax evasion. Sections 194I, 194IB, and 194IC outline different obligations based on payer categories and rent amounts. Understanding these provisions helps tenants and landlords comply with tax regulations, avoiding penalties and ensuring smooth financial transactions.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.