TDS on rent income is applicable in day to day transactions. TDS under section 194I is applicable on payment of rent which is more than Rs. 180000 p.a. But it is not applicable in all cases. Let’s see the provision.
Rate of TDS on rent u/s 194I:
There are different rates applicable for tax deduction under section 194I for rent income from different assets.
TDS rate for payment to use of plant and machinery / equipment: 2%
TDS rate for any other assets like building, house, vehicle, furniture, fitting etc. : 10%
Who is liable to deduct TDS u/s 194I?
Following persons are liable to deduct TDS on rent :
- Partnership firm
- any person other than individual and HUF
- individual or HUF who is covered under section 44AB in previous year. In short whose turnover is more than Rs. 1 crore or Rs. 40 lakhs in financial year 2013-14. (for a.y. 2014-15) .
Threshold limit for tax deduction under section 194I:
TDS u/s 194I is required to be deducted when total payment made during the year exceeds Rs. 180000 in the current year.
TDS on rent is not required to be deducted in following circumstances:
- Where total payment does not exceed Rs. 1,80,000 during the year.
- Payment is to government or other entities and entities whose income is exempt u/s 10.
- When income receiver applies to AO for non deduction of TDS in form 13. Person can apply if his total income including rent income is less than basic exemption limit.
Rent income examples:
- Renting of space to put hoardings.
- Payments made by person other than individual or HUF for hotel rent.
- Composite contract when payment is made for rent income.
- Warehousing charges
- Landing and parking charges by airport authorities.
- Lease rentals.
TDS u/s 194I and service tax:
Sometimes the party who receives the payment charges service tax in bill. In that case, there is question that whether service tax should be included to calculate TDS amount or not.
This confusion was solved by CBDT via circular no. 4/ 2008 dated 28-4-2008. It clarified that tax should not be deducted on service tax amount on rent.
Mr. Raj charges Rs. 449440 (Rs. 4,00,000 rent + 49,440 service tax ) to Prashant for building rent.
In that case, TDS should be deducted at 10% on Rs. 4,00,000.
Total payment after deducting TDS will be
Rs. 400000 + Rs. 49440 – Rs. 40000 = 409440.
TDS on advance rent:
TDS on rent is also applicable on advance rent. Following points should be kept in mind while using section 194I on advance rent:
- When advance is spread over years, TDS credit can be claimed proportionally as per income shown in tax return.
- If asset is sold to other party, new owner can claim TDS credit which was not used by previous owner.
TDS on non refundable deposit:
If property holder receives non refundable deposit, TDS should be deducted on that payment also. But If deposit is refundable, no need to deduct TDS on that payment.
When can you avoid TDS u/s 194I?
TDS on rent can be avoided by person whose income is less than basic exemption limit including rent income. or the person whose income tax liability is less than TDS on rent.
He can apply AO in form 13 to lower or no deduction of TDS.
Refund of TDS:
You can get refund of TDS if your income tax liability is lower than TDS amount. Choose appropriate income tax return form. Don’t know which form is appliacable to you read our form how to choose income tax form. Show all the income and TDS amount. You can get refund for TDS amount exceeding tax payable.
TDS deduction at higher rate:
If payee does not provide PAN card no, TDS is required to deducted at higher rate of 20%.
- No surcharge is applicable on TDS payment except payment is foreign company and more than 1 Crore.
- No education cess is required to be added on TDS rate.
- Rent income on house property or building comes under income tax head ‘ income from house property’ Other incomes are covered under income from other sources head of income tax.
I have tried to cover all the points for TDS on rent in this article. I hope this article will become helpful to you. Still have any query? Ask me through comment. Also share this article with friends and inspire me to write more.