You are a land owner or land lord, owner of a shop, or PG, or building or anything and you are thinking of renting them out. Then, you must know about TDS on rent. You may be liable to pay TDS on rent, subject to conditions.
What is Rent?
Any income received from either renting out or leasing out your property such as room, building, flat, shop, any machinery, land or any other property, can be called as Rent. Here, rent also includes sub-lease, tenancy or any other arrangement or agreement.
What is TDS on Rent?
As per section 194(I) of the Income Tax Act, 1961, when tax is deducted by the tenant on paying rent to the landlord/landowner/payee/etc, that is known as TDS on rent.
Who can deduct TDS?
• According to section 194(I), any person can deduct TDS, being a tenant, except when the tenant is an individual or Hindu Undivided Family.
• If the individual or Hindu Undivided Family comes under the purview of section 44AB of the Income Tax Act(Tax Audit), then they can also deduct taxes.
TDS on Rent Limit:
• TDS is deductible only if the tenant has to pay rent to the landlord/landowner/payee, that exceeds amount of Rs 1,80,000 annually.
How much is TDS percentage?
• If the payee is an individual or Hindu Undivided Family(HUF), then TDS percentage is fixed at 10%, if the properties on rent include land, furniture, building etc.
• For other payees, the same percentage is also fixed at 10%, if the renting properties include land, furniture, building etc.
• In case machinery, equipment or plant is on rent then, the percentage of rent deductible as tax is fixed at 2%.
• If the payee or landlord or owner fails to provide his PAN number to the tenant, then the rate, at which TDS on rent is deductible is fixed at 20%.
Whether any surcharges or cess applicable?
No, on the top of TDS, no other charges such as surcharges, higher secondary education cess or any other education cess, SHEC are applicable.
What is the case with Advanced Rent?
Where rent is paid to the landlord in advance then TDS is applicable to be deducted subject to conditions. Those conditions are –
• If rent paid in advance is refundable or only paid in advance so that in future can be reimbursed, then no TDS deduction is applicable.
• When the advance payment of rent is spread over one financial year, then TDS is deducted proportionally with the income earned in that particular financial year.
• In a situation where TDS has been deducted and after that the property on rent has been sold to another person, then TDS credit, in case applicable, will be credit to the new owner, if has not been availed by the previous owner.
• When advance payment of rent is already done, and after that the rent agreement or arrangement or lease or sub-lease is cancelled then, TDS if deducted, is liable to be credited back to the landlord or land owner or payee. But for that, the payee or landlord has to furnish rent cancellation agreement in his Income Tax Return filing to get TDS credit.
Who are exempted from TDS on rent?
• When in case, tenant is paying municipality taxes, land taxes, water bill, electricity bill etc, then no taxes are deducted on those amount.
• If the tenant has paid any amount as securities or any advance rent, if those are refundable in nature, then that one is also exempted from TDS.
• When the total amount payable to the landlord or payee as a rent does not exceed the taxable amount of Rs 1,80,000, then also landlord is exempted from paying any taxes.
• In case of government agencies is acting as landlord or payee, then the amount payable to the government is exempted from TDS.
• An individual or Hindu Undivided Family is involved in the agreement as either landlord or tenant, and they are not having any other source of income, such as from profession or business, then they are also exempted from TDS.
• Also for the purpose of film exhibition, the revenue earned from it, when shared between film exhibitor and distributor owning the theatre, is exempted from TDS.
Who can claim refund or reduction in TDS on rent?
• Those payee who have a valid reason that the TDS deducted has been more than the taxable amount can claim refund by submitting an application while filing for ITR.
• He can fill up a Form 13 and submit it to the assessing officer, who after proper verification can issue a certificate regarding the same to the payee to get refund or reduction in TDS rates.
When TDS should be deducted?
Mostly as per the law, it should be deducted at the time of payment or rent to the landlord or payee. In return, the deductor or tenant, in this case, must issue a TDS certificate to the payee. To know more about the TDS certificate, keep reading further.
When TDS deducted should be paid to the government?
• When the government is deductor, who offers contract, then tax is paid to the government account on the same day of the deduction from the fee of the payee or contractor.
• It is irrespective of whether the challan has been issued or not.
• The time limit for the payment of TDS with the government is, on or before the 7 days of the end of the month.
• When the deductor is a non-government entity, then also the time limit is same, i.e. on or before 7 days of the month.
• And the payment must be made with the government on the same day of deduction.
• In case the payment to the contractor is done annually then, the TDS is deducted in the month of March and hence same is deposited with the government on or before 7 days of the end of the month March, or before 30th April.
Issuance of TDS certificate on rent to the payee:
As per the law, the certificate after deduction must be issued on time. Failing of which, may incur penalty on the part of the deductor. The due date to issue certificate is different for government and non-government tenant. Same is mentioned below –
• Government Deductor –
1. For a First quarter (1st April to 30th June) – 15th August
2. For Second quarter (1st July to 30th September) – 15th November
3. For a Third quarter (1st October to 31st December) – 15th February
4. For a Fourth quarter (1st January to 31st March) – 30th May
• Non-government Deductor –
1. For a First quarter (1st April to 30th June) – 30th July
2. For a Second quarter (1st July to 30th September) – 30th October
3. For a Third quarter (1st October to 31st December) – 30th January
4. For a Fourth quarter (1st January to 31st March) – 30th May
Other details to know: –
• TDS on rent is calculated differently for different assets such as TDS on furniture is different from TDS on land on lease.
• In case of cold storage facilities, where cold items such as ice creams or vegetables are stored, are treated as plant items and taxes are charged accordingly.
• These cold storage facilities are not treated as building property on rent and hence are exempted from TDS on rent. They are only liable to pay service charges for their services.
• For hotel accommodations, a rent is paid to the hotel on a regular basis and they come under the purview of TDS on rent.
• Through an amendment in Income Tax Act, section 194(I)(b), has added a new criteria for an individual or HUF, if they pay a monthly rent in excess of Rs 50,000, they will be liable under section 194(I) to pay TDS.
• In case the TDS is filed late, then a penalty of Rs 200 per day will be charged upon the deductor, which should not exceed the total amount of TDS payable.
• In a situation, where a building has been rented out by one person and furniture in that building is rented out by another person, then TDS on rent will be deducted only on the amount that is payable as rent to first person.
So, if you are a landlord, land owner or a tenant, you should have the knowledge about TDS on rent. In need of any help with tax calculation over rent amount or verification related things, contact experts of Company Vakil for the same. You will surely get the best advice.
I am currently pursuing my LLB from Delhi University. My area of focus is Intellectual Property, Patents & Trademark Registration, etc. I have special interest in Commercial Arbitration. Contact me @govsraj on Twitter.