TDS on Rent [Section 194-I]

"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

(J)         equipment; or

(s)        furniture; or

(h)        fittings,

whether or not any or all of the above are owned by the payee.

In other words, besides on land or land and building, tax shall now also be deductible for leasing or hiring of machinery, plant, equipment furniture and fittings whether given separately or together. Further, it shall be deductible whether or not any or all of the above are owned by the payee.

1.   Who is liable to Deduct TDS:

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. 2,40,000  (Rs. 1,80,000 up to 31.3.2019) 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 [Second proviso to section 194-I]

2.   When TDS is to be Deducted:

Tax should be deducted either at the time of actual payment of rent or at the time of its credit to the account of the payee, whichever is earlier.

3.   Rate of TDS for Financial Years 2019-20 and 2020-21

The rates of TDS in case of rent shall be as under:

Notes:

1.       No surcharge or health and education cess shall be added to the above rates. Hence, tax will be deducted at source at the basic rate.

2.         The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee.

4.   Where no TDS is to be Deducted at Source:

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. 2,40,000 ( Rs. 1,80,000 up to 31.3.2019):

No tax is to deducted if the aggregate amount of rent in the previous year does not exceed Rs. 2,40,000 ( Rs. 1,80,000 up to 31.3.2019). Where the share of each co-owner in the property is definite and ascertainable the limit of Rs. 2,40,000 ( Rs. 1,80,000 up to 31.3.2019) 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 the employee [Section 197A (1A), (1B) and (1C]:

The employee 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:

(1)          Payment from accumulated balance of recognized provident fund, if taxable.

(2)          Interest on securities.

(3)          Interest other than interest on securities.

(4)          Payment in respect of life insurance policy, if taxable.

(5)          Insurance commission

(6)          Payment in respect of deposit under National Saving Scheme.

(7)          Payment in respect of rent.

Notwithstanding anything contained in section 197A(1B), above, no deduction of tax shall be made from the above incomes in the case of an individual resident in India who is of the age of 60 year or more at any time during the previous year, if such individual furnishes to the payer, a declaration in writing in duplicate in Form No. I 5H to the effect that the tax on his estimated total income of the previous year in which the above income is to be included in computing has total income will be Nil.

In the case of such senior citizen, the income from the above sources can be more than the maximum amount which is not chargeable to tax but the tax on his estimated total income, inclusive of such incomes, should be nil.

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 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.

(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 the return of income under section 1 39(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.

5.   Where the TDS is either Not to be Deducted or to be Deducted at Lower Rate [Section 197 Rule 28 and 28AA]

The assessee to whom rent is payable may make an application in Form No. 13 for obtaining a certificate for deduction of tax at any lower rate or no deduction of tax, as the case may be.

An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, under section 197(1) shall be made in Form No. 13 electronically,—

(i)         under digital signature; or

(ii)        through electronic verification code.

Where such certificate is given, it will be valid for such period of the previous year as may be specified in the certificate and the person responsible for paying such rent, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified in such certificate or deduct no tax, as the case may be.

The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued except in certain cases direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate

However, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No. 13 under that section contains the Permanent Account Number of the applicant.