When it comes to managing rental income, property owners in India must navigate the complexities of tax regulations, particularly the Tax Deducted at Source (TDS) under Section 194I of the Income Tax Act. This provision mandates that tenants deduct a percentage of the rent paid to landlords as TDS, ensuring that tax is collected at the source. Understanding the nuances of TDS on rent is crucial for both landlords and tenants to ensure compliance and avoid penalties. This guide will walk you through the essential aspects of TDS on rent, including its implications, the definitions of rent, applicable rates, and the responsibilities of both parties involved.
All you want to know about rent receipt and its role in saving tax
What is TDS?
TDS is a type of income tax that is deducted by the person making the payment, on making certain payments. This means that the tax liability is on the person receiving the money in the transaction. TDS is basically a process under which tax is collected at the source from where an individual’s income is generated. TDS is levied on several incomes, including the rent that a landlord earns from his tenant, commission, professional fees, salary, interest, etc. know more about TDS payment here.
Under the income tax laws, different types of incomes attract different TDS rates. According to the Income Tax Department, the concept of TDS was introduced with an aim to collect tax from the very source of income. “As per this concept, a person who is liable to make payment of specified nature to any other person shall deduct tax at source and remit the same into the account of the central government. The deductee whose income tax has been deducted at source, would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor,” it says.
What is TDS on rent under Section 194I?
Section 1941 was inserted in the income tax law through the Finance Act, 1994, to cover rental income under the ambit of TDS payments. TDS on rent paid by a businessman is governed by Section 194I while TDS on rent paid by an individual or HUFs falls under Section 194IB of the law.
What does ‘rent’ mean under section 194I?
- In the context of Section 194I, ‘Rent’ refers to any payment made under a lease, sub-lease, tenancy, or any other agreement for the use of the following, whether individually or in combination:
- Land
- Building (including factory buildings)
- Land attached to a building (including factory buildings)
- Machinery
- Plant
- Equipment
- Furniture
- Fittings
- This definition applies regardless of whether the payee owns these assets, meaning that subletting is also included.
- If a landlord receives a security deposit or advance payment when renting out a building, with the condition that the deposit will be returned when the tenant vacates the property, this amount is not considered income and is therefore not subject to TDS under Section 194I. However, advance rent, which is not a refundable security deposit, is subject to TDS. Additionally, if rent is credited to a ‘suspense account’ or any other account, it is also liable for TDS.
Conditions for TDS deduction on rent
Section 194I of the Income Tax Act says the tenant must deduct 10% TDS on rent generated from any land or building if the aggregate of the rent paid or likely to be paid during a financial year exceeds Rs 2.40 lakh. The limit of Rs 2.40 lakh is applicable for each payee and not for each of the properties. In case the owner of a property has let-out more than one property to the same lessee and the annual rent of these is less than Rs 2.40 lakh for each property annually but the aggregate of the rent is likely to exceed Rs 2.40 lakh, the lessee has to deduct the tax at source.
See also: Section 80GG is HRA is not part of your salary.
When is TDS under Section 194I not required?
- Amount paid or payable is below Rs 2,40,000 annually: TDS is not applicable if the total rent paid or due during the financial year is Rs 2,40,000 or less (previously, this threshold was Rs 1,80,000).
- Tenant is an Individual or Hindu Undivided Family (HUF): TDS under Section 194I is not required if the rent is paid by an individual or HUF that is not engaged in a business that undergoes an audit under income tax regulations.
- Revenue sharing in film exhibition agreements: When there is a revenue-sharing arrangement between a film distributor and an exhibitor who owns a cinema hall, TDS is not applicable. In these agreements, the exhibitor’s share is considered a composite service rather than a rent payment, as the distributor does not lease or sub-lease the cinema hall.
Tax (TDS) deduction rate on rent in 2024
| Nature of payment | TDS on rent |
| Rent of plant and machinery | 2% |
| Rent of land or building or furniture or fittings | 10% (5% for Individuals and HUFs not liable for tax audit) |
See also: Revenue stamp on rent receipt: When is it needed?
What payments are covered under section 194I?
The following payments are covered under section 194I:
- Income from letting out factory buildings: When a factory building is rented out, the rent received is typically considered business income for the lessor or owner. However, in some cases, it may be categorised as income from property. Regardless of the classification, even if the income is considered business income for the lessor, it is still subject to TDS under Section 194I.
- Rent includes service charges: Payments classified as service charges, especially those made to business centres, are included under the definition of rent for Section 194I purposes. These payments are subject to TDS, regardless of how they are named.
- TDS requirement for separate lessor of building and furniture: If a building is rented out by one person and the furniture and fixtures by another, the tenant must deduct TDS under Section 194I for both the rent paid for the building and the rent paid for the furniture.
- TDS on rent payment not paid monthly: Section 194I does not require TDS to be deducted monthly. If rent is credited or paid quarterly or annually, the TDS should be deducted at the time of credit or payment based on that specific period.
- Charges for cold storage facilities: In the case of cold storage facilities, where items like milk, ice cream, and vegetables are stored, the payments are often considered charges for using a plant, rather than rent for a building. Since these agreements are contractual, Section 194C applies instead of Section 194I.
- Hall rent paid by an association: If an association, which is taxed as an Association of Persons (AOP) and not as an individual or HUF, pays rent for the use of a hall, it must deduct TDS under Section 194I if the rent exceeds Rs. 2,40,000 (previously Rs 1,80,000).
- Payments to hotels for seminars including meals: When hotels charge not only for the use of premises but also for catering or meals, Section 194I does not apply. Instead, Section 194C applies to the catering portion of the payment.
Who is liable to deduct TDS on rent?
The present provisions are applicable to all tax payers, including companies, firms, trusts or association of persons, etc.
However, if the payer of rent is an individual or HUF, the provisions will apply if the payer of the rent is engaged in a business or profession and the accounts were required to be audited during the preceding year, due to the turnover being in excess of the prescribed limit.
Check out Housing.com’s rent receipt format
What happens if TDS is not deducted on rent?
If the TDS is not deducted, penalty interest at 1% is applicable per month till the TDS is deducted.
How is TDS on rent calculated?
Tenants are required to deduct TDS when the payment is being made to a resident landlord on rent payment exceeding Rs 2.40 lakh in a year.
If the landlord is a non-resident, the tenant has to deduct tax under the provisions of Section 195 of the Income Tax Act, without there being any threshold limit of Rs 2.40 lakh per annum.
The payment may be called by any name but the tax is required to be deducted in case the payment is for use of land, building or land and building.
Also, it is not necessary that the recipient of the rent should be the owner of the property. So, in case a lessee sublets the property taken by him on rent/lease to any other person, the sub-lessee has to deduct tax at source.
Likewise, tax is required to be deducted from payments made to hotels for providing rooms to you in case the rent is likely to exceed the limit during the year.
TDS on advance rent
Advance rent payments made to a landlord are subject to TDS deductions. Here are some key exceptions to keep in mind regarding TDS calculations on advance rent:
- Crossing financial years: If the advance rent payment extends into the next financial year, the TDS will be calculated based on earnings as reported in Form 16 for the total rent paid in advance.
- Transfer of asset: If the property is transferred or sold to another party, the TDS credit cannot be claimed until the transfer is officially credited to the new owner.
- Cancellation of rental agreement: In cases where the rental agreement is cancelled after advance rent is paid and TDS has been deducted, any remaining balance will be refunded to the tenant. The landlord must note this cancellation in the Income Tax Return (ITR) form for the TDS deduction.
- Quarterly TDS certificate: For payments other than salaries, a TDS certificate must be issued quarterly in the form of Form 16A.
When is TDS deducted on rent?
The TDS is required to be deducted at the time of crediting the rent in its books of accounts even if the payment is made later. Likewise, you need to deduct the tax at the time of making an advance payment of such rent, either for the year or even in cases where the rent is paid in advance for more than one year. For payment of the TDS to the credit of the government, you need to obtain the tax deduction account number (TAN) and deposit the tax through the prescribed challan.
See also: All about TDS on sale of property
How to pay TDS on rent?
The tenant has to furnish information regarding the transaction online on the TIN website, www.tin-nsdl.com. After successfully providing details of the transaction, he can either make the payment online through e-tax payment option immediately or make the payment subsequently through e-tax payment option (net-banking account) or by visiting any of the authorised bank branches. However, such bank branches will make e-payment without digitization of any challan. The bank will get the challan details from the online form filled on TIN website(www.tin-nsdl.com).
Time limit for depositing TDS on rent
The deadlines for depositing TDS vary based on the type of payment. Here are the key timelines:
- Payments by government: If the payment is made by or on behalf of the Government, TDS must be deposited on the same day without the need for a challan form.
- Payments in other cases: For payments made outside of the Government, TDS must be deposited on or before the 7th day of the month following the deduction, provided the tax is paid using an Income Tax challan.
- March payments: If TDS is credited or paid in the month of March, the deadline for depositing is April 30.
- General case: For all other cases, TDS must be deposited on or before the 7th day of the month following the month in which the deduction was made.
TDS deduction on rent paid by individuals and HUFs in 2024
| Rent payer | TDS rate | Threshold limit |
| Companies, firms, trusts or association of persons, etc., and individuals or HUFs, where the payer is engaged in a business whose accounts were audited | 10% of the rent. | TDS has to be deducted if the aggregate of the rent paid or likely to be paid during the year exceeds Rs 2.40 lakh |
| Individuals and HUFs not covered in the above section | 5% of the rent. | TDS has to be deducted if the rent for each month or part of the month is more than Rs 50,000. |
The payer is required to deduct tax only in the last month of the year or during the last month of tenancy in case the property is vacated during the year. However, in case the rent is paid earlier, you are required to deduct tax at the earlier moment.
So, with the new provisions, even the people who are salaried or retired and not carrying on any business or profession but are paying rent above Rs 50,000 per month, will have to deduct tax at source from such rental. This will bring those people into the tax net, who are earning rent by letting out the property to people who are not engaged in any business or profession.
Since the rent for this purpose includes any payment for use of building, this will even cover the rent paid by you to hotels for room bookings, or even to marriage halls, in case the rent for use of such premises exceeds Rs 50,000 even for one day.
TDS on rent paid to NRIs
According to Section 195 of the Income Tax Act, the tenant should deduct TDS at the rate of 30% on rent paid to an NRI landlord for property located in India. For deducting TDS on the rent, the tenant should have a TAN. If the tenant fails to deduct TDS on the rent paid to the NRI, the payer is liable to pay penalty as per the prevailing provisions.
Is TAN mandatory for TDS on rent?
Individual or HUFs need PAN to deduct and deposit TDS. Assessees other than individuals or HUFs need to have a TAN to deduct and deposit TDS.
Form for TDS payment
To pay TDS on rent, log on to www.tin-NSDL.com. On the website, you will find the link to fill Form 26QC. Fill all your details, the details pertaining to your landlord and all the details of the financial transaction. In case you are sharing the accommodation, their details must also be furnished. Similarly, if your landlord co-owns the property with someone else, their details must also be given in the form.
See also : Know everything about ITR filing last date
Transit rent not taxable: Bombay HC
Rent received from a real estate developer during a redevelopment project is not taxable, the Bombay High Court (HC) has ruled. That way, there is no question of such rent attracting TDS (tax deducted at source), the high court has said in a recent judgement.
According to the HC, rental compensation received from a developer during the redevelopment of an ongoing project constitutes a ‘capital receipt’ rather than a ‘revenue receipt’.
“The ordinary meaning of rent would be an amount which the tenant/ licensee pays to the landlord/licensor. In the present proceedings, the term used is transit rent, which is commonly referred as hardship allowance/rehabilitation allowance/displacement allowance, which is paid by the developer/landlord to the tenant who suffers hardship due to dispossession. Hence, in my opinion ‘Transit Rent’ is not to be considered as revenue receipt and is not liable to be tax, as a result there will be no question of deduction of TDS from the amount payable by the developer to the tenant,” a single Judge Bench of Justice Rajesh S Patil ruled while delivering its order in the Sarfaraz S Furniturewalla versus Afshan Sharfali Ashok Kumar & Ors case.
Housing.com POV
Section 194I of the Income Tax Act mandates the deduction of TDS on rent payments, ensuring that rental income is taxed at its source. Whether the rent pertains to land, buildings, machinery, or furniture, the responsibility of deducting and depositing TDS lies with the tenant, provided certain thresholds are met. This regulation aims to streamline tax collection and ensure compliance, with specific provisions and exemptions depending on the nature of the rent and the entities involved. Adhering to these rules is crucial to avoid penalties and maintain transparency in rental transactions.
FAQs
What is Section 194I of the Income Tax Act?
Section 194I of the I-T Act deals with TDS on rent payments. Section 194I covers persons who are not individuals/HUFs, as well as individuals/HUFs who are liable to audit under Section 44AB (a) and (b). Section 194IB covers individuals and HUFs who are not liable to audit. Section 194IC covers joint development agreements.
Where can I pay TDS on rent?
Any individual or organisation that deducts TDS from rent, can deposit the same to the credit of the government, through the portal https://www.tin-nsdl.com/ or through authorised banks.
What is the meaning of 'rent' for TDS on rent?
Rent refers to any payment made for the use of land, building or land and building, or payments made to hotels for providing rooms.
What are the income tax forms for TDS on rent?
A tenant has to fill a challan-cum-statement (Form 26QC) on the TIN website for reporting the TDS on rent transaction.
What is the penalty for not deducting TDS on rent?
If the TDS is not deducted, penalty interest @ 1% shall be applicable per month, till the TDS is deducted.
