TDS on rent has to be deducted as per section 194I only when aggregate amount paid or to be paid or credited or to be credited exceeds Rs 1,80, 000 during the financial year. This means, tax should be deducted either at the time of payment or credit to the account of the payee, whichever is earlier.
If rent for a financial year is likely to exceed Rs 1,80, 000, then we suggest you to start deducting tax for every month under section 194I.
In case the property is jointly owned by more than one person, then this limit of Rs. 180000 will be applicable to each such owner based on the proportion of their holdings. Payment is to be considered assessee wise not asset wise.
Section 194I is applicable to all assessees who is a resident of India except in the case of an individual or HUF whose gross receipt or turnover from business or profession does not exceed the limit as prescribed in section 44AB.
Definition of Rent – Section 194I
TDS on rent is to be deducted under section 194I only if it has been paid or payable under a lease, sub lease, tenancy or any other agreement or arrangement for the use of following assets, either separately or together;
- Building including factory building
- Land Appurtenant to a building
TDS on rent will be deducted even if such assets are not owned by the payee.
Rate of TDS on rent – Section 194I
Section 194I has two TDS rates based on the type of asset. If rent is paid for the use of plant, machinery or equipment, then tax has to be deducted at the rate of 2%.
In cases like rent for land, building or both or furniture or fixture tax has to be deducted at the rate 10%.
Rate of tax to be under section 194I is a flat/fixed rate.
It’s the responsibility of the owner to intimate their PAN to deductor. In absence of PAN, TDS on rent has to be calculated @20% instead of the normal rate as applicable under section 194I.
Surcharge should not be added to the TDS amount calculated based on above rates unless payment is to a foreign company in excess of Rs. 1 crore.
Even education cess or secondary and higher education cess is not to be charged on the above rates while deducting tax on rent.
No TDS on GST
GST will be applicable only when total gross receipts of the owner for a financial year exceeds rupees 20 lakhs.
CBDT has clarified vide circular number 23/2017, that TDS is to be charged on the amount of rent and not on GST if it’s charged separately in invoice.
No TDS or Tax to be deducted at a Lower Rate
If owner’s income is not taxable as per the current provisions of income tax act, then such person can apply to the assessing officer for a lower rate of deduction or Nil rate of TDS.
After being satisfied with the application, the assessing officer will issue a certificate for lower deduction or no deduction of TDS on rent. Owner has to produce this certificate to the deductor to deduct tax at a lower rate as per the certificate.
TDS on Rent paid In Advance
Where rent has been paid in advance to the landlord or owner, TDS at the above rates are to be deducted at the time of making payment. In such cases, if advance rent is paid for more than one financial year, then it has to be allowed in proportion to which such income is offered for tax.
If security deposit paid in advance is non refundable then TDS on such amount has to be deducted while making payment as its part of the consideration paid towards rent.