Are you paying a hefty rental amount or earning substantial rental income? If yes, then this article is for you. Do you know that as per Income Tax Act, 1961 rental income is subject to the Tax Deduction at Source (TDS)?
It means certain payers are liable to deduct the TDS amount from the total rental amount, whenever he pays it. A delay or failure in doing so can attract penal interest, as under:-
- If you fail to deduct the TDS on the rental amount on or before the due dates prescribed then you will be liable to pay interest @ 1% per month.
- It will be applicable from the date when TDS is deductible till the actual date of deduction.
Failure to Deposit TDS Deducted on Rent
- If you deduct the TDS but fail to deposit it to the government then you need to pay interest at the rate of 1.5% per month.
- It will be applicable from the date when TDS is deducted to the date it is actually deposited.
Therefore, it’s better to deduct and deposit TDS on rent timely if you are liable to avoid any penalties. Let’s understand the key sections related to TDS on rent in detail.
TDS compliance to person (other than Individuals and HUFs) Section 194-I
What does section 194-I entail?
As per section 194-I persons (other than individual & HUF) making rental payments to a resident person are liable to deduct TDS over the specified limit. The rent under this section broadly includes rent of plant & machinery, equipment, building, furniture, land etc.
But if the Individual or HUF assessee becomes eligible for tax audit under section 44AB(a) or 44AB(b) then he/she is required to deduct TDS under section 194-I.
What is the specified limit under section 194-I?
No TDS on rent need to be deducted if the rental amount paid to a person is up to Rupees. 2,40,000 in the financial year. Simply put, if the rental amount exceeds the specified limit of Rupees. 2,40,000 then the payer has the obligation to deduct TDS under section 194-I.
What are the rates of the TDS under section 194-I?
TDS has to be deducted under section 194-I as per the following rates:-
● Rent for the plant & machinery or the equipment- 2% TDS on the rent amount paid.
● Rent for the land or building or furniture – 10% TDS on the rent amount paid.
When to deduct TDS under section 194-I?
TDS has to be deducted at the time credit of the rental amount to payee account or at the payment thereof via cheque or draft or cash or any other mode, whichever is earlier.
bAlso, the TDS deducted needs to be deposited to the government within 7 days from the end of the month in which the deduction is made. But for the month of March TDS needs to be deposited by 30th April by the payer.
TDS compliance to Individuals and HUFs Section 194-IB
What does section 194-IB impose?
As per section 194-IB, Individuals and HUFs who are not liable to tax audit under section 44AB(a) or 44AB(b) are liable to deduct the TDS amount on the rental amount paid by them for immovable property.
When does the liability arise under section 194-IB?
The liability to deduct TDS under section 194-IB arises when the rental amount paid to a resident person by Individuals or HUF (on whom tax audit is not applicable) exceeds Rs 50,000 per month. Simply put, if you are paying up to Rupees. 50,000 as rent on the immovable property then you are not liable to deduct TDS.
What are the rates of the TDS under section 194-IB?
TDS has to be deducted at the rate of 5% on the rent amount paid under section 194-IB. Although, where the payee fails to furnish his PAN TDS shall be deducted at the rate of 20%. However, in that scenario, such a deduction cannot exceed the rent of the month.
When to deduct TDS under section 194-IB?
In this section, TDS is required to be deducted only at the time of credit or actual payment of the last month’s rent, whichever is earlier. In case the property is vacated during the year, the last month of tenancy will be considered.
When to deposit TDS under section 194-IB?
TDS amount deducted under section 194-IB must be deposited within 30 days from the date of deduction of such TDS. There is no requirement of TAN under section 194-IB.
Hope, this article solves all your doubts related to the applicability of TDS on rent. If you need any assistance or have any queries then drop us a message here and one of our team members will contact you.
