TDS On Rent U/s 194-I and 194-C

The person (not being an Individual or HUF) who is responsible for paying any income to resident by way of rent is liable to deduct tax at source in case the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to payee exceeds Rs. 1,80,000/-. Individuals and /or HUFs who are subject to tax audit are also under an obligation to deduct the tax at source. The limit of Rs. 1,20,000/- was enhanced to Rs. 1,80,000/- w.e.f. 1.7.2010.

 

1.      Meaning of ‘Rent’ U/s 194-I and 194-C  

‘Rent‘ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:-

 

a)         land; or

b)         Building (including factory building); or

c)         Land appurtenant to a building (including factory building); or

d)         Machinery; or

e)         Plant; or

f)          Equipment; or

g)         Furniture; or

h)         Fittings

 

whether or not any or all of the above are owned by the payee-Explanation (i) to Sec. 194-I. Sub-letting is also covered.

 

In case the landlord collects security or advance payment at the time of letting out a building to a tenant on the condition that the deposit will be refunded at the time of vacating the building, such a receipt is not in the nature of income and, therefore, no tax is to be deducted at source u/s 194-I. However, advance rent (not in the nature of refundable security deposit) paid is, subject to tax deduction. Moreover, where any such rent is credited to ‗suspense account‘ or to any other account shall also be liable to deduct tax at source.

 

2.      Application of Sec. 194-I

The Finance Act, 1994 inserted the Sec. 194-I, regarding deduction of tax from payment of rent. The Government felt that an item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way of rent. In a number of countries also such income is subject to deduction of income-tax at source.

 

Any person, not being an individual or a H.U.F., who is responsible for paying to a resident any income by way of rent is liable to deduct tax at source as and when aggregate of the amount of such income credited or paid or likely to be credited or paid during financial year exceeds Rs. 1,80,000/-. Individuals or H.U.F.s who were subject to tax audit under Sec. 44AB during the financial year immediately preceding the financial year in which such rent was paid or credited are also liable to deduct tax at source.

 

3.      TDS Deduction Under Sec. 194-I

 

Income from letting out of factory building:-

Where a factory building is let out, the rent received generally is income from business in the hands of the lessor or the owner of the factory. Only in a few cases it is income from property in the lessor‘s hands. But such payment also, which is business income in the hands of the lessor and for which he will necessarily be paying advance tax and finally be returning the rental income, will be subject to tax deduction at source. This is an unnecessary burden on both taxpayer and the tax administrator, because collection of tax will take place as TDS from the lessor without much delay.

 

Rent includes service charges:-

Service charges payable to business centres are covered under the definition of rent, as they cover payments by whatever named called.

 

TDS requirement where building and furniture, etc., let out by separate persons:-

In case where building is let out by one person, and furniture, fixtures, etc., are let out by another person, then the payee is required to deduct tax under Sec. 194-I only from the rent paid/credited for the hire of building.

 

TDS requirement where rent not payable on monthly basis:-

Sec. 194-I does not mandate that the tax deduction should be made on month-to-month basis. Therefore, if the crediting of the rent is done on quarterly basis then deduction at source will have to be made on the quarterly basis only. Where the rent is paid on yearly basis deduction also will have to be made once a year on the basis of actual payment or crediting.

 

Charges regarding cold storage facility:-

In the case of cold storage where milk, ice cream, vegetables, etc., are stored, the payment may be styled as charges for use of plant and not for use of building. Cold storage is a plant.

 

Hall rent paid by an association for use of it:-

Since the association is assessed as an association of persons and not as an individual or HUF, the obligation of tax deduction will be there, provided payment for the use of hall exceeds Rs. 1,80,000.

 

Payments to hotels for holding seminars including lunch:-

Where hotels do not charge for use of premises but charge for catering/meal only, then provisions of Sec.194I would not apply. However, Sec.194C would apply for catering part.

 

4.      No TDS deduction in certain cases:-

 

Amount payable/paid not exceeding Rs. 1,80,000 during the financial year:-

No tax from the amount payable in respect of rent is deductible where the amount of such rent credited or paid or likely to be credited or paid during the financial year to the payee-landlord or lessee does not exceed Rs. 1,80,000.

 

Where tenant is individual or Hindu Undivided Family:-

Deduction is not required under Sec. 194I if the amount is paid or payable by an individual or Hindu Undivided Family. If : (a) the individual/HUF is not to carrying on any business/profession or (b) individual/HUF not liable to tax audit in preceding year

 

Sharing or proceeds of film exhibition between a film distributor and a film exhibitor owning a cinema theatre:-

Representations have been received from various quarters regarding applicability of the provisions of Sec. 194-I of the Income Tax Act to the sharing of the proceeds of film exhibition between film distributor and film exhibitor owning a cinema theatre. The matter has been examined by the Board and the Board is of the view that the provisions of Sec.194-I would not be attracted to such payment because:

 

the exhibitor does not let out the cinema hall to the distributor.

 

Generally, the share of the exhibitor is on account of composite services; and

 

The distributor does not take cinema building on lease or sub-lease or tenancy or under an agreement of similar nature.

 

Where the payee is the Government at agency:-

Under the provisions of Sec. 196, no tax is required to be deducted at source from any sums payable to the government.

 

The matter with regard to the statutory authorities and the local authorities referred to, has been examined by the Board. Sec. 190 provides for deduction of income-tax at source as one of the modes of collection of income-tax in respect of an income, notwithstanding that the regular assessment in respect of such an income is to be made in a later assessment year. The income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, is exempt from income-tax under Sec. 10(20A). Similarly, the income of a local authority which is chargeable under the head ‗Income from house property‘ or ‗Income from other sources‘, is exempt from Income-tax under Sec.10(20). There is no other condition specified in these two clauses of Sec.10 which is necessarily to be satisfied to avail of the income-tax exemption.

 

There is no requirement to deduct income-tax at source on income by way of ‗rent‘ if the payee is the governmental agency. In the case of the local authorities and the statutory authorities, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about his tax-exempt status under clause (20) or (20A) of Sec.10 on the basis of certificate to this effect given by the said authorities.

 

5.      When tax needs to be deducted at source:-

Tax is required to be deducted at source at the time of credit of ‘income by way of rent‘ 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.

 

6.      Credit of rental income in “suspense account‟:

The incidence of tax deduction under Sec. 194-I will arise at mere incidence of crediting to the rental income in the lessee‘s books of account, be it even a suspense account. The Explanation (ii) to sec. 194-I deemed such crediting to be credit of such income to the account of the payee.

 

7.      Rates of tax deduction:-

 

Sr. No.

Nature of Payment

Income tax %

1.

Rent of plant and machinery

2

2.

Rent of land or building or furniture or fitting

10

 

8.      No deduction or deduction at lower rate under Sec. 197:-

On application by payee in Form no. 13, if the Assessing Officer is satisfied that this total income justifies no deduction of tax or deduction at lower rate, he may issue a certificate in Form No. 15AA to that effect directly to the payer.

 

9.      Time limit within which tax is to be deposited.

 

 

Due date for payment

 Where the payment is made by or on behalf of the Government

 

 Where the payment is made in any other case than the Government-

 

 

 

a) If the amount is credited or paid in the month of March

 

b) In any other case.

(i) On the same day (without using any challan form).

 

(ii) on or before 7 days from end of month in which deduction is made where tax is paid accompanied by an Income-tax challan.

 

On or before April 30th

 

 

On or before 7 days from the end of the month in which the deduction is made.

 

10.    Issue of TDS certificate to the payee:-

In case of payments other than salary, TDS certificates are to be issued on quarterly basis in Form No.16A.

 

As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. The certificate is to be issued by following dates :

 

Quarter

Due date for Non-Government deductor

Due date for Government deductor

April to June

30th July

15th August

July to September

30th October

15th November

October to December

30th January

15th February

January to March

30th May

30th May

 

As per CBDT Circular No. 1/2012, dated 9-4-2012, it is mandatory for all the deductors to issue TDS certificate in Form No. 16A by generating the certificate through TIN central system by downloading the certificate from the TIN website with a unique TDS certificate number. These provisions are applicable in respect of all sums deducted on or after 1-4-2012. The certificate so issued can be authenticated either by using digital signature or manual signature.

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