TDS on Rent

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Section 194I – TDS on Rent 2021

TDS stands for Tax Deducted at Source according to the IT Act. Section 194I of the IT act is related to the deduction of TDS on rent of Plant and machinery, building, land, furniture, or instruments. According to this section, people paying rent on the earlier mentioned can avail of rental TDS discounts. The TDS deduction is appropriate when the amount of rent surpasses ₹ 2,40,000 per fiscal year.

Briefly, the limit on rent for TDS deduction was set at ₹ 1,80,000; however, with impact from the fiscal year 2019-2020, the TDS rent limit raised to ₹ 2,40,000. According to section 194i of the IT Act, the TDS deduction does not pertain to the rent’s security deposit.

Define Rent under Section 194I

Section 194i of the IT act specifies rent as a payment done as per any tenancy agreement, lease, sub-lease for using any of the following:

  • Land
  • Building
  • Plant and Machinery
  • Furniture
  • Machinery
  • fitting

The word ‘rent’ per the procurement is general to the above-mentioned, whether solely owned or not. Besides, the banks can also receive the rent from the payee for sub-letting.

Rates of TDS on Rent u/s 194-I and 194-IB

Type Of Rent TDS Rate Section Of IT Act Explanation
Rent paid towards commercial/ industrial premises 10% 194-I Tax to be deducted and deposited monthly
Rent paid towards residential premises leased by non-individual entities like companies 10% 194-I Tax to be deducted and deposited monthly
Rent paid towards residential premises leased by salaried and self-employed individuals 5% 194-IB Tax to be deducted and deposited once at the end of the lease’s financial year or end; TAN not required.

TDS on Rent u/s 194-I at 10%

Mr Ankush earns a capital accrual of ₹ 2,40,000 per year and can charge Tax-Deductable at Source on such payments.

  • Tax is to be decreased on rent given towards any type of premises – suburban, shop, commercial or industrial.
  • Rental TDS needs to be subtracted with each rental amount and transferred to the government account every month.
  • In case service tax or GST is levied on rental by the owner, TDS is to be subtracted only on the rent amount and not on service tax or the GST amount.

Tax Deducted on Rent u/s 194-IB at 5% – for salaried and self-employed individuals.

Mr Ankush earns a capital accrual of ₹ 50,000 or more per month wanted to deduct tax at 5% of the rental amount.

  • Tax can be subtracted and deposited in a single payment at the end of the business year or at the end of the lease duration, whichever is sooner.
  • The Tenant must download the TDS certificate (Form 16A) from the TRACES website and produce the same as the owner, after subtracting and depositing the tax.
  • Unlike other tax subtractors, as per section 194ib, in the case of individuals decreasing tax on rent, there is no necessity to register as a deduction with the IT department and receive a PAN number. Using their PAN, the Tenants can transfer the rental TDS and generate Form 16A from TRACES.

FAQs about TDS on Rent

What is the rate of TDS on rent?

The TDS rate on rent of a plant and machinery is 2%, whereas the rent on the land, building, furniture, and fitting is 10% as per section 194I of the income tax act. This rate applies to non-individuals. However, for individuals and HUFs, the TDS rate is 5%. Visit Dialabank to know all about TDS on rent and its benefits.

Should TDS be deducted on rent?

The TDS subtraction on rent is a compulsory provision under section 194I of the income tax act. The section states that if the rent on a building, land, furniture, fitting or plant and machinery exceeds ₹ 2,40,000, then rental TDS has to be deducted. The provision was introduced to cover rent as a source of income for TDS deduction.

How is TDS on rent calculated?

The TDS on rent is calculated if the payment of rent exceeds ₹ 2.40 Lakh. The payments are to be made to use any land, building, fitting, or furniture, under ownership, lease, and sub-lease. Even hotels and accommodations can cut TDS from payments if the hotel’s rent limit or cost exceeds ₹ 2.40 Lakh. A TDS rate of 10% is liable for TDS deduction for rent paid by non-individuals as per section 194i of the income tax act; however, it is 5% for individuals and HUFs as per section 194ib.

What if TDS is not deducted on rent?

If the rent amount per financial year exceeds ₹ 2.40 Lakh, then TDS deduction is mandatory as per section 194I of the Income-tax act. If the TDS is not deducted from the tax, then a penalty of 1% is applicable per month until the TDS is deducted.

Who pays TDS on rent?

As per section 194I, all individuals, whether salaried or self-employed, non-individuals like companies, trusts, associations, etc., and HUFs, are liable for TDS deductions on rent. The TDS rate for non-individuals is 10%; however, it is 5% for individuals and HUFs as per section 194ib of the Income-tax act.