Rent is the amount people pay to use a property, like land, buildings, or equipment. Whether it’s for a lease, sub-lease, or other agreements, rental income can come from many sources. However, in India, the government requires a part of this rental income to be deducted as tax at the source.
This is known as Tax Deducted at Source (TDS), and it is guided by specific sections of the Income Tax Act, namely Sections 194I, 194IB, and 194IC.
Let’s break down these rules in simple terms.
What is TDS on Rent?
TDS is a way for the government to collect tax on rental income directly from the rent payment, as it is made. This means, when a person pays rent, a certain percentage of that rent is automatically deducted by the payer and sent to the government.
When is TDS Applied on Rent?
TDS is required when the total rent exceeds certain limits set by the government. There are different rules depending on the type of rental agreement and the person or entity making the payment.
Government Rules on Rental Income
The government has set rules about taxes on rental income through specific sections of the tax law:
- Section 194I: Tax deducted at source (TDS) on general rent payments.
- Section 194IB: TDS on rent payments made by certain individuals or families.
- Section 194IC: TDS on payments made under specific agreements.
These sections help the government collect tax on money earned from renting properties.
Section 194I: TDS on General Rent Payments
Section 194I applies when rent is paid for properties like land, buildings, machinery, plants, or equipment. If the total annual rent paid exceeds ₹2,40,000, the person paying the rent must deduct TDS before making the payment.
Any person (except individuals or Hindu Undivided Families, or HUFs, not subject to tax audit) must deduct TDS.
What is the TDS rate?
Under Section 194I, the rates for tax deduction at source (TDS) are:
- 2% for renting machinery, plants, or equipment.
- 10% for renting land, buildings (including factories), furniture, or fittings.
TDS must be deducted when the rent is paid or credited to the recipient’s account—whichever happens first.
Important Notes on Section 194I:
Rent includes payments for using land, buildings, machinery, plants, equipment, furniture, or fittings. This applies whether the rental agreement is a lease, sub-lease, tenancy, or any other type.
You don’t need to deduct TDS if:
- The total rent paid to a recipient in a financial year does not exceed ₹2,40,000. (Note: The limit was ₹1,80,000 until the end of FY 2018-19.)
- The rent is paid to a business trust that owns the asset, such as a real estate investment trust as defined under Section 10(23FCA).
No TDS on security deposits unless the deposit is adjusted against the rent later.
Meaning of ‘Rent’ in Section 194I
According to Section 194I, rent refers to any payment made for using the following:
- Land
- Buildings (including factory buildings)
- Machinery
- Plants
- Equipment
- Furniture
- Fittings
This includes payments made through leases, sub-leases, tenancies, or other agreements.
Special Considerations Under Section 194I
Here are some important points to keep in mind regarding TDS under Section 194I:
- Warehousing Charges: Payments made for warehousing services are subject to TDS under this section.
- Security Deposits: If you pay a security deposit to rent an asset, TDS does not apply as long as the deposit is refundable. However, if the deposit is later adjusted against rent, TDS becomes applicable.
- Business Center Rentals: Payments for renting a business center fall under TDS regulations in Section 194I.
- Hotel Accommodations: Regular payments for hotel stays under an agreement are also subject to TDS.
- Employee Payments: If an employee or company representative pays for accommodation and is later reimbursed by the company, no TDS will be deducted on that amount.
Section 194IB: TDS for Individuals and HUFs Paying Rent
Section 194IB is specifically for individuals and Hindu Undivided Families (HUFs) who are not subject to audit. If they pay rent of more than ₹50,000 per month, they need to deduct TDS.
Who Needs to Deduct TDS Under Section 194IB?
Any individual or HUF that is not required to undergo an audit under Section 44AB must deduct TDS when paying rent to a resident if the monthly rent surpasses the ₹50,000 limit.
Tax Rates Under Section 194IB
- The standard TDS rate is 5% on rent payments.
- If the recipient’s PAN is not available, the rate increases to 20% under Section 206AA.
- If the rent recipient is a specified person under Section 206AB, the deduction rate is 10%.
- Note: The TDS amount cannot exceed the rent paid for the last month.
When to Deduct TDS Under Section 194IB
TDS must be deducted at the earlier of these two times:
- When the rent is credited (for the last month of the previous year or the last month of tenancy if the property is vacated).
- When the rent payment is made (in cash, cheque, draft, or other methods).
No TDS Required
If the rent does not exceed ₹50,000 per month, then TDS is not necessary. Also, there is no requirement for a Tax Deduction and Collection Account Number (TAN) to deduct TDS under this
Section 194IC: TDS on Joint Development Agreements (JDAs)
Section 194IC was created to apply TDS rules to payments made under Joint Development Agreements. This ensures that tax is collected on income generated from such arrangements.
Who Needs to Deduct TDS Under Section 194IC?
Any person who makes a payment (in cash or any form other than goods) to a resident under a Joint Development Agreement must deduct TDS according to this section.
What is a Joint Development Agreement?
A Joint Development Agreement is a contract between a property owner (such as land or building owner) and another party who wishes to develop a real estate project on that property. In return for allowing the development, the owner receives a share of the profits from the project or a cash payment.
Tax Rate
- The TDS rate under Section 194IC is 10%.
- If the recipient’s PAN is not available, the rate increases to 20%.
Timing of Tax Deduction
TDS must be deducted at the earlier of these two events:
- When the income is credited to the recipient’s account.
- When the payment is actually made (in cash, cheque, draft, or other methods).
There is no minimum limit for deductions under this section, meaning TDS applies regardless of the amount being paid.
Time Duration for Depositing TDS
- General Deadline: TDS must be deposited by the 7th of the following month after it has been deducted, except for March.
- March Deadline: For the month of March, TDS must be deposited by 30th April.
- Specific for Rent Payments Under Section 194IB: When it comes to rent payments under Section 194IB, you must file a challan cum statement (Form 26QC). This form needs to be submitted within 30 days from the end of the month in which the TDS was deducted.
Frequency and Mode of TDS Payment Under Section 194IB
- Payment Responsibility: Tenants are responsible for deducting TDS and paying it to the government.
- Filing Requirements: A challan-cum-statement (Form 26QC) must be filed for this transaction.
- No TAN Required: It’s important to note that a Tax Deduction Account Number (TAN) is not needed for making payments under Section 194IB.
Penalty for Delayed Payment and Delayed Return Filing
- Late Deduction: If TDS is deducted late, interest is charged at 1% per month (or part of a month) on the amount of TDS from the date it should have been deducted until the date it was actually deducted.
- Late Payment: If TDS is deducted but not deposited, interest is charged at 1.5% per month (or part of a month) on the TDS amount from the date it was deducted until the date it is deposited.
Late Fees for Filing TDS Returns (Section 234E)
- If the tax deductor fails to submit TDS statements on time, a late fee of ₹200 per day is applicable until the return is filed.
- However, the total penalty cannot exceed the amount of TDS that needs to be reported.
Example
If ABC needs to file a TDS return for ₹2,500 and submits it 15 days late:
Total Penalty Calculation:
- Days of delay: 15 days
- Penalty: 15 days × ₹200 = ₹3,000
- However, since the penalty cannot exceed the TDS amount, the penalty under Section 234E would be limited to ₹2,500.
Penalties Under Section 271H
The Assessing Officer can impose a penalty ranging from ₹10,000 to ₹1,00,000 for the following reasons:
- Failure to file TDS/TCS returns by the due date.
- Providing incorrect information while filing TDS or TCS returns.
TDS on Rent by Individuals and HUFs
| Rent Payer | TDS Rate | Threshold Limit |
| Companies, firms, trusts, associations, and individuals or HUFs whose business accounts are audited | 10% of the rent | TDS is required if the total rent paid or expected to be paid in a year exceeds ₹2.40 lakh. |
| Individuals and HUFs not subject to audit | 5% of the rent | TDS is required if the rent for any month exceeds ₹50,000. |
TDS on Rent Paid to NRI Landlords
According to Section 195 of the Income Tax Act in India, when a tenant pays rent to a Non-Resident Indian (NRI) landlord for a property in India, they must deduct TDS at the applicable rate.
- TDS Rate: The general TDS rate for rent paid to an NRI landlord is 30%.
- Tax Treaties: The actual TDS rate may vary if there are tax treaty agreements between India and the NRI’s country of residence, which could reduce the rate.
How to Make TDS Payment Online
To make TDS payments online, follow these steps:
- Visit the Official Website: Go to the Income Tax Department’s website.
- Navigate to TDS Payment: Look for the option to pay TDS online, often found under the “Tax Information Network” or “e-Payment” sections.
- Select Payment Type: Choose the type of payment (TDS) and the relevant assessment year.
- Fill in Details: Enter the required details, including your TAN (Tax Deduction Account Number) and the amount of TDS to be paid.
- Choose Payment Mode: Select your preferred payment method (e.g., net banking).
- Complete the Transaction: Follow the prompts to complete the payment. You will receive a confirmation of the transaction.
- Save the Receipt: After payment, make sure to save the receipt for your records. This will serve as proof of payment.
Offline Payment Process
If you prefer to pay TDS offline, you can do so by:
- Filling Out the Challan: Obtain the TDS payment challan (Form 281) from the bank or download it online.
- Visit a Bank Branch: Submit the completed challan physically at a designated bank branch.
- Obtain Counterfoil: After submitting the challan, you will receive a counterfoil. This counterfoil, once stamped by the bank, serves as proof of payment for future reference.
Frequently Asked Questions (FAQs)
Do payments made under a business center agreement attract Section 194-I?
Yes, tax must be deducted from rent payments, regardless of what the agreement is called. If the payment is for renting a property, even if styled as a business center agreement, it is subject to TDS under Section 194-I.
Is a contract for putting up a hoarding covered under Section 194C or 194-I?
A contract for hoarding is treated as advertising and falls under Section 194C. However, if someone rents a space and then sublets it for a hoarding, TDS would apply under Section 194-I.
How is TDS calculated if rentals include municipal tax or ground rent?
TDS under Section 194-I is deducted from the actual rent amount. If the tenant pays municipal taxes or ground rent, those amounts are not included in the TDS calculation, as they are not part of the rental income.
Is Section 194-I applicable to rent paid for part of a property?
Yes, Section 194-I applies to rent for any portion of land or a building, as it defines rent to include any payment for the use of land or buildings, regardless of whether it’s for the whole property or just part of it.
Are hotel accommodation payments subject to TDS under Section 194C or 194-I?
Payments for regular hotel accommodations are subject to TDS under Section 194-I. However, if the arrangement is merely a rate contract for room tariffs, TDS is not applicable.
What is the difference between Section 194I and Section 194IB?
| Particulars | Section 194I | Section 194IB |
| Who deducts TDS? | Individuals and HUFs covered under Section 44AB; others have no conditions | Individuals and HUFs not covered under Section 44AB; others not applicable |
| Monetary Limit | ₹2,40,000 per annum | ₹50,000 per month |
| Applicable Assets | Land, building, plant, machinery, furniture | Land and building only |
| TDS Rate | 2% for plant/machinery, 10% for land/building | 5% on land and building |
| Timing for TDS Deduction | At credit/payment, whichever is earlier | At credit/payment for last month or tenancy, whichever is earlier |
| Time Limit for TDS Payment | Within 7 days from end of month (30th April for March) | 30 days from end of month of deduction |
| TAN Required | Yes | No |
| Form to be Filed | Form 26Q | Form 26QC |
Is GST applicable on rent?
GST applies to the rent of commercial properties but not to residential property rent.
Who is responsible for depositing TDS on rent?
The person paying the rent must deduct TDS from the payment and deposit it with the government.
What happens if I don’t report my rental income?
Underreporting or misreporting of income can lead to penalties under Section 270A, which can be 50% or 200% of the tax on the unreported income.
How can I claim a deduction for rent paid?
Rent payments can be claimed as a deduction under Section 10(13A) for House Rent Allowance (HRA) or under Section 80GG.
