Sec 194I of Income Tax Act - TDS on Rent

TDS under section 194I

Sec 194I of the Income Tax Act 1961 is related to the TDS deduction on payment of rent. The provisions explain the applicability, rate, time of deduction, and payment of TDS on rent. Here is a detailed explanation of section 194I:
 

1) Meaning of Rent under TDS Sec 194I:

(i) "Rent" means any payment received against lease/ sub-lease/ tenancy or any other agreement for the use of any of the following–

- land; or

- building (including factory building); or

- land connected to a building (including factory building); or

- machinery; or

- plant; or

- equipment; or

- furniture; or

- fittings,

 (ii) It is irrespective of the fact that any or all of the above are owned by the payee.

2) Who shall pay TDS under Sec 194I?

Any person other than an individual or HUF who is liable to pay the rent to any resident shall deduct TDS under u/s 194I, at the time of credit or payment (whichever is earlier)

* Individuals/HUF whose gross receipts/ turnover from any business exceeds Rs 1 crore or 50 lacs in case of the profession during the immediately preceding FY shall be liable to deduct TDS u/s 194I

3) Rate of TDS u/s 194I

TDS shall be deducted at the following rates:

i) Rent paid in respect of plant, machinery or equipment @2%

ii) Rental payments covered under the scope of TDS Section 194I (i.e., rent for use of any land or building, including factory building, or land appurtenant to a building, including factory building, or furniture or fixtures) @10%.

4) Time limit of TDS deduction Sec 194I:

TDS is deducted:

- At the time of amount transfer of income to the account of the payee or

- At the time of payment whether it is in cash or by the issue of cheque/draft or by any other mode.
whichever is earlier.

Where any such 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 make such payment, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section will apply accordingly.  

5) Threshold exemption limit for TDS under Sec 194-I:

The exemption limit sec 194I is Rs 2,40,000. That is TDS shall not be deducted during the FY if the amount of such income or the aggregate of the amounts of such income credited or paid or likely to be credited or paid, does not exceed Rs 2,40,000.

6) Important Circulars for TDS Sec 194I:

Circular No.1/2008 clarified that provisions of 194-I are not applicable on the payments made by customers on account of cooling charges to cold storage owners instead of these provisions of Sec 194-C shall apply.

Circular No.35/2016,

Accordingly dated 13/10/2016, the CBDT has, vide this clarified that lump sum lease premium, which is not adjustable in respect of periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property is not payments in the nature of rent within the meaning of sec 194-I. Therefore, such payments are not liable for deduction of TDS under sec 194-I.

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