2. Who is liable to Deduct TDS under Section 194-I
Any person, other than an individual or a HUF, is responsible for paying to resident in India, any income by way of the rent, amounting in aggregate to more than Rs.1,80,000 in a financial year.
However, individuals and HUF who were covered under section 44AB(a) and (b) in the preceding previous year, are also required to deduct tax at source.
3. When TDS under Section 194-I is to be Deducted
The person responsible for paying rent should deduct tax at source. Tax is to be deducted at source either:
at the time of credit of such income to the account of 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.
Where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. [Explanation to section 194-I].
4. TDS Rate under Section 194-I for the Financial Year 2018-19 and 2019-20
|Nature of Payment (194-I) - Rent
||Rent of plant. machinery or equipment
||Rent of Land, building or furniture to an individual and Hindu undivided family
||Rent of land, building or furniture to a person other than an individual or Hindu undivided flimily
No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.
The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.
No TDS on Service Tax included in Rent:
Service tax paid by the tenant does not partake the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore it has been decided that tax deduction at source (TDS) under sections 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
5. Where No TDS is to be Deducted under Section 194-I
No tax is required to be deducted at source under this section in the following conditions are satisfied:
(A) Where aggregate amount of Rent does not exceed Rs.1,80,000:
No tax is to deducted if the aggregate amount of rent in the previous year does not exceed Rs.1,80,000 . Where the share of each co-owner in the property is definite and ascertainable the limit of Rs.1,80,000) will be applicable to each co-owner separately.
(B) No deduction shall be made under section 194-I :
where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in section 10(23FCA), owned directly by such business trust.
(C) Where a self declaration under Form No. 15G/15H is furnished by a particular person [Section 197A(1A), (1B) and (1C)]:
A person, other than a company or firm may furnish a declaration in writing in duplicate in new Form No. 15G to the payer to the effect that there is no tax payable on his Total Income. In this case, the payer shall not deduct any tax at source.
However, as per section 197A(1B), the assessee cannot furnish the declaration under this clause if the aggregate amount of the following incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to tax:
- Payment from accumulated balance of recognized provident fund, if taxable.
- Interest on securities.
- Interest other than interest on securities.
- Payment in respect of life insurance policy, if taxable.
- Insurance commission
- Payment in respect of deposit under National Saving Scheme.
- Payment in respect of rent.
As per section 206AA(2), declaration under Form No. 15G or 15H shall not be valid if it does not contain the Permanent Account Number (PAN) of the declarant. In case any declaration becomes invalid, the deductor shall deduct the tax @ 20% except where the payment is made from accumulated balance of recognised provident fund where it will be deducted at the maximum marginal rate.
For filing of Form 15G/15H. See rule 29C.
(D) Rent paid to the Government and certain entities:
No tax at source need be deducted from payments by way of rent made to Government and entities whose income is exempt from income-tax under clauses (20) and (20A) of section 10 of the Income-tax Act. .
(E) Certain entities required to file return under section 139(4A) or 139(4C) [Rule 28AB]:
As per rule 28AB certain entities who are required to file there return of income under section 139(4A) or 139(4C) may apply under Form No. 13 for no deduction of tax at source provided certain conditions are satisfied.
(F) Certain entities whose income is unconditionally exempt under section 10:
In case of certain entities whose income is unconditionally exempt under section 10 and who are statutorily not required to file return under section 139 there will be no requirement for TDS since their income is in any way exempt.
6. Where TDS under Section 194H is either Not to be Deducted or to be Deducted at Lower Rate [Section 197 Rule 28 and 28AA]:
Any person to whom rent is payable may make an application in Form No. 13 to the Assessing Officer and obtain such certificate from him, as may be appropriate, authorising the payer not to deduct tax or to deduct tax at a lower rate.
As per section 206AA(4), no certificate under section 197 for deduction of tax at Nil rate or lower rate shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.