In this article, we will cover provisions of TDS on rent paid by a tenant or lessee :
- Under section 194I, and
- Under section 194IB (not liable for tax audit)
Let’s get to it one by one!
TDS under section 194I
A tenant or lessee is required to deduct income tax (TDS) while paying or crediting rent to a resident landlord or lessor.
As per the provision-
- Every person (other than Individual or HUF) shall deduct TDS on rent
- If the amount of rent credited or paid or likely to be credited or paid during the financial year exceeds Rs. 1,80,000/-Before 1st July 2010 the limit was Rs. 1,20,000/-
- Individuals and HUFs who are subject to tax audit (section 44AB) are also under an obligation to deduct TDS on rent.
Ownership of Asset is irrelevant for TDS deduction. Therefore, TDS is also attracted while paying rent to subletter.
TDS Rate Under Section 194I
|Sl No||Rent of||TDS Rate|
|1||Machinery or plant or equipment||2%|
|2||land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings||10%|
TDS on Security Deposit
- If the security deposit is adjustable as rent a.k.a. advance rent, TDS should be deducted at the time of payment or credit.
- If the security deposit is refundable then TDS deduction is not required.
Point of Deduction of TDS (u/s 194I)
TDS is required to be deducted-
- at the time of credit 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.
Exemption from TDS
No TDS under section 194I is required, if rent is paid or credited to a business trust, being a real estate investment trust for any real estate asset owned by such business trust.
Meaning of rent and Credit of Such income (u/s 194I)
1. Rent: means any payment, by whatever name called (like service charge), 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
whether or not any or all of the above are owned by the payee;
2. The credit of Such income to the account of the payee (deductee): means any income which 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 (deductor).
TDS on Rent by Individual or HUF under section 194IB
Any individual or HUF [whose books of account are not required to be audited under section 44AB] is liable to deduct TDS @ 5% while making payment of rent of any land or building or both to a resident person if the amount of rent exceeds Rs.50,000/- for a month or part of a month. (Section 194-IB w.e.f 1st June 2016)
Such individual or HUF is not required to obtain Tax deduction and collection account number (TAN).
I repeat again!
If an individual is not subject to tax Audit, TDS for rent should be deducted under section 194-IB and If he is subject to tax audit TDS under section 194I should be deducted.
Section 194IB limit for TDS: Rent of Rs.50,000/- per month or part of a month
Point of Deduction of TDS (u/s 194IB)
TDS shall be deducted at the time of credit of rent, for-
- the last month of the previous year (FY) i.e march or
- the last month of tenancy, if the property is vacated during the year, as the case may be,
whichever is earlier,
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.
Example 1: If Landlord provides PAN no.
Mr.Ram pay rent of Rs.60,000/- p.m. to his landlord from 1st August 2017 to 31st December 2017 (4 months). Compute TDS u/s 194 IB.
Rent Paid in previous year 2017-18 = 60000*4 = Rs.2,40,000/-
TDS = 5% of Rs.2,40,000 = Rs.12,000/-
Net Rent payable for the month of December 2017= 60000 – 12000 = Rs.48,000/-
The due date to deposit TDS is 30th Jan 2018 and use challan 26QC. TDS certificate should be issued to the landlord within 15 days of submission of challan 26QC in form 16C.
Example 2: If Landlord doesn’t provide PAN no.
Mr.Ram pay rent of Rs.60,000/- p.m. to his landlord from 1st April 2017 to 31st March 2018 (12 months). Compute TDS u/s 194 IB.
Rent Paid in previous year 2017-18 = 60000*12 = Rs.5,00,000/-
TDS shall be lower of (u/s 206AA) :
- 20% of Rs.5,00,000 = Rs.1,00,000/-
- ➡ 60,000 (Last month rent)
Therefore, Net Rent payable for the month of March 2018= 60000 – 60,000 = Zero
Deposite TDS of Rs.60,000 upto 30th April 2018 using challan 26QC. TDS certificate should be issued to the landlord within 15 days of submission of challan 26QC in form 16C.
Difference between 194I and 194IB
|Difference on ground of||Section 194I||Section 194IB|
|Applicability||Individual or HUF subject to tax audit||Individual or HUF not subject to tax audit|
|TDS rate||(i) 10% for land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings
(ii) 2% for Machinery or plant or equipment
|5% for land or building or both|
|Rent threshold||in excess of Rs.1,80,000 in a year||in excess of Rs.50,000 in a month|
|TDS Certificate||Form 16A||Form 16C|
|Requirement of TAN||Yes||No|
For example on 194I: Refer Govt. Tutorial