Rate of TDS on Rental Income Under Section 194I of the Income Tax Act

Rate of TDS on Rental Income Under Section 194I of the Income Tax Act, Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income 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, deduct income-tax thereon at the rate of—

View Form 26AS TDS Deduction Status Online

(a)  two per cent for the use of any machinery or plant or equipment; and

(b)  ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:

TDS Rates Chart For Year 2013-14

NATURE OF PAYMENT: TDS ON RENTAL INCOME IS 10%

 Payment by way of “rent”

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

  • Land, or
  • Building (including factory building), or
  • Machinery, or
  • Plant, or
  • Equipment, or
  • Furniture, or
  • Fittings

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

Rate of TDS on Fees For Professional Services under section 194J of the Income Tax Act

TDS Rate on Salary Income and TDS Calculation under section 192


TDS RATES

Nature of payment

Basic rate of TDS

Payment for use of machinery / plant / equipment

Payment for use of land / building / furniture / fitting

2%

10%

IMPORTANT POINTS:

  1. TDS under this section is necessary only if the rent paid or payable during a previous year exceeds Rs. 180000/-. Thus a question would arise as to whether the limit of 120000/-shall apply to the aggregate of rents of all item (mentioned above in the list) hired from one person, or will apply individually to each item. The clear interpretation of the language is that is it will apply to the aggregate of the all rents.
  2. Whether the property is owned by two or more owners and the individual share of each co-owner is definite and ascertainable the limit of Rs.180000/- shall apply to each co-owner separately.
  3. Non refundable deposit given by the tenant is in the nature of advance rent and will be subject to TDS.
  4. Any refundable security given by the tenant does not attract TDS unless such deposit is in the nature of advance rent.

CBDT CIRCULAR NO.4/2008, DATED 28-4-2008

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

  • Land,
  • Building (including factory building),
  • Machinery,
  • Plant
  • Equipment
  • Furniture
  • Fittings

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

The board has further observed that the 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 section 194-I of income tax act would be required to be made on the amount of rent paid / payable without including the service tax.

Note: This circular is directly relevant for sec 194-I only. Whether it would also apply to other section of TDS or not is not free from doubt. There are two views on this issue.

Reference: Section 194-I of the Income Tax Act, 1961

TDS on Rent

194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income 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, deduct income-tax thereon at the rate of—

(a)  two per cent for the use of any machinery or plant or equipment; and

(b)  ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts 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, the payee, does not exceed one hundred and eighty thousand rupees :

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.]

Explanation.—For the purposes of this section,—

(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

(f)  equipment; or

(g)  furniture; or

(h)  fittings,

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

(ii)  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.]

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