After the insertion of section 194IB in the finance act, 2017, there is a lot of confusion is arising in the differences between 194I and 194IB. Well through this article, I will try to cover all your doubts related to the TDS on rent of the property.
As per Section 194-I of the income tax act, 1961, where the person is giving the rent, then he shall be required to deduct the TDS on the amount of rent and paid the rest of the amount to landlord and TDS amount to government in the 7th of Next month in which TDS is being deducted.
In the above paragraph, you may have some questions like whether all kind of person as deductor or what is the limit for deducting the TDS or at which rate TDS would be deducted or on which rent there is a requirement for deducting the TDS. So let’s begin.
TDS on Rent under section 194-I
Deductor: A person who is liable for the payment of rent and deduction of TDS is called deductor. A deductor can be any person other than an individual or HUF who is not liable for the payment of tax audit in the preceding financial year.
Deductee: This can be any resident person. Note: It is to be noted that in case, any Non-resident has given property on rent in India then the deductor shall not deduct the TDS under this section instead he shall be liable for the deduction of TDS under section 195.
Rate of TDS: In case plant and machinery has been given on rent then the lessee shall deduct the TDS @2% on the rent payment of such plant and machinery and he shall deduct the TDS @ 10% in case of person has given any land or building or furniture and fittings.
Limit for deducting the TDS: TDS is required to be deducted by the lessee where the payment of rent exceeds Rs.2,40,000 per Annum.
Note: till last year the said limit was Rs.1,80,000 per annum but as per the Finance Act, 2019, from 01.04.2019, the limit has been increased to Rs.2,40,000 per Annum. Hence, TDS on rent limit is Rs.2,40,000 per annum.
Note: Do not confuse it with the limit Rs.50,000. This limit has been mentioned in section 194-IB.
By reading above, you may get the idea of deduction of TDS on rent payment. Now let’s discuss some of the other relevant issues relating to section 194I
- The landlord can give a declaration under section 197 A for non-deduction of TDS on rent payment to be received by him.
- Rent means any payment for use of land or building or plant and machinery or furniture and fittings or equipment.
- In case, the lessee has paid the payment in advance then also, he shall be required to deduct the TDS. In such a case, it shall be treated as the payment made to the landlord, which is being already net payment which after deduction of TDS.
For example: if the lessee has paid the rent of Rs. 90 on immovable property in advance then it shall be deemed that he has already deducted the TDS on the payment and shall be liable to deposit the TDS within 7th of next month in which he has given the advance rent. So, in this case, Rs.10 as TDS, he shall have to deposit to the government.
Now the question arises, that whether the person shall also have to deduct the TDS on security deposits which he shall have to give to the landlord. Well, it depends on whether the amount is being refundable or not. Sometimes, the security amount is given back to the lessee at the end of the rental term. However, in case, the as per the agreement, the security amount can be adjusted with any future rent payment then he shall also be required to deduct the TDS on security deposits.
In simple words, TDS is required to be deducted on non-refundable deposits.
Also, in case, such deposits carry any interest amount then on such interest TDS shall be deducted but such TDS shall be deducted under section 194-A.
- Where the property has been rented in between the co-owners then the limit of Rs.2.4 Lakhs shall be checked for each co-owner.
- TDS under section 194 I shall also be deducted on warehousing charges. However, it does not apply to a cold storage facility. Cold storage is used to preserve the perishable goods through the chemical process or storage of such goods. The customer does not have any right given on such a place to use any plant or machinery. Therefore the provisions of section 194-I shall not be applicable to the cooling charges paid by the customers of cold storage.
However, as per the arrangement between the customer and cold storage owners are basically contractual in nature hence the provision of section 194 C shall be applicable to the cooling charges by the customers of the cold storage.
Japan Airlines Vs Commissioner of Income-tax:
Landing and parking charges paid by the airlines in respect of aircraft are not for “use of land” per se but the charges are in respect of the number of facilities provided by the airport authority of India. Hence, the landing and parking charges payable by the airlines would attract TDS under section 194 C and not under section 194 I.
TDS on rent under section 194-IB
Till now, we have discussed section 194 I and now we will understand section 194 IB.
Section 194 IB deals with the TDS to be deducted on the payment of rent by certain Individuals or HUF.
Deductor: Here, deductor can be any person who is not liable to tax audit in the prescribed financial year.
Deductee: Any resident. Like section 194 I, here also, if the landlord is being Non-resident then the TDS shall be deducted under section 195 and not under section 194-IB.
Limit for deduction of TDS under section 194 IB: TDS is required to be deducted when the rent amount is being more than Rs.50,000 per month.
Normally, the person is required to deduct the TDS in the month in which the payment has been made or such payment has been accrued for the payment but under this section, TDS shall be deducted only one time in a year i.e. annually in the last month of the previous year. Although in case the tenant is vacating the premises during the financial year, then TDS is required to be deducted in the month in which he shall vacate the house.
Rate of TDS: The TDS shall be deducted @ 5% of the rental amount.
Whether in section 194 I or 194 IB, the tenant can be a resident or non-resident person but it is necessary that the deductee should be Resident person to cover under this section. It is also irrelevant whether the land is situated in India or abroad. TDS shall be deducted under this section only if the payment is being made to the resident.
Also, under section 194 IB, the tenant need not required to obtain the TAN number i.e. section 203A shall not be applicable.
Normally, TDS is required to be deposited within 7 days from the end of the month in which TDS was deducted but under section 194 IB, TDS shall be deposited within 30 days from the end of the month in which TDS was deducted.
In case, Landlord does not obtain the PAN number then the rate of TDS shall be increased from 5% to 20%.
Now let’s understand the difference in these 2 sections in tabular form for more clarification:
|1||Applicability||This section is applicable where the deductor is any person other than an individual or HUF who is not liable for the payment of tax audit in the preceding financial year.||This section is applicable where the deductor is an individual or HUF who is not liable for the payment of tax audit in the preceding financial year.|
|2||Limit for deducting TDS||Under section 194 I, TDS shall be deducted when the rental amount is Rs.2,40,000 Per Annum.||Under section 194 IB, TDS shall be deducted when the rental amount is Rs.50,000 Per month i.e. Rs.6,00,000 Per Annum.|
|3||Rate of TDS||TDS shall be deducted at the rate
2% on plant and machinery and
10% on Land and building or furniture and fittings
|TDS shall be deducted at the rate of 5% of the rental amount.|
|4||Time for deduction||TDS shall be deducted at the time of payment of rent||TDS shall be deducted only once in a year i.e. in the last month of the year.
Although, if the tenant is leaving the house during the financial year then he shall deduct the TDS.
|5||Time for the deposit of TDS||The deductor shall be required to deposit the TDS within 7 days from the end of the month in which the TDS has been deducted.||The deductor shall be required to deposit the TDS till the 30th of next month i.e. within 30 days from the end of the month in which the TDS has been deducted.|
|6||TAN||It is compulsory for the deductor to have the TAN number||There is no compulsory requirement for the deductor to have the TAN. Although he and the landlord must have the PAN number otherwise the tenant is required to deduct the TDS @ 20% instead of 5%|
I hope this article has resolved most of the queries in relation to the TDS on rent under section 194 I and 194 IB. If still, you have any issues or queries in this regard then you can call us or mail us. We will be happy to give you assistance