Section 194-I - TDS on Rent - Income Tax - Ready Reckoner - Income Tax

Section 194-I : TDS ON RENT Any person, other than an individual or HUF, is responsible for paying to a resident in India, any income by way of rent is liable to deduct TDS. However individuals or HUF who are covered u/s 44AB(a) and (b) in the preceding previous year are also liable to deduct tax at source. Time of Deduction At the time of credit or actual payment, whichever is earlier. Rate of TDS : (i) For use of Plant Machinery 2% (ii) For use of Land, building, furniture or fitting 10% Threshold Limit - No TDS where amount does not exceed 2,40,000 during a financial year. Note: No tax deduction shall be made under section 194-I where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in section 10(23FCA), owned directly by such business trust. No TDS on GST included in rent: GST paid by the tenant does not take the nature of income of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. No TDS on lump sum lease premium paid for acquisition of long term lease: It is clarified that lump sum lease premium , which are not adjustable against rent, are not in the nature of rent u/s 194I. Therefore such payments are not liable for TDS. No deduction of tax shall be made under section 194-I of the Income-tax Act on payment in the nature of lease rent or supplemental lease rent, as the case may be, made by a person (hereinafter referred as lessee ) to a person being a Unit of an International Financial Services Centre (hereinafter referred as lessor ) for lease of a ship. [ Notification No. 57/2023 Dated 01.08.2023 ] Where lesee paid an upfront fee against licence fee for a lease covering a period of 30 years, Tax is deductible on on such upfront fee as rent under section 194-I. Rent means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use (either separately or together) any, land; or building (including factory building) or land appurtenant to a building (including factory building) machinery plant equipment furniture fittings Whether or not any or all of the above are owned by the payee. TDS should also be deducted on advance rent, warehousing charges and non-refundable deposits. Where the share of each co-owner in the property is definite and ascertainable, the limit of 2,40,000 will be applicable to each co-owner separately. The landing and parking fee were definitely rent within the meaning of the provisions of section 194-I as they were payments for the use of the land of the airport. Where composite arrangement is made for user of premises and provision of manpower for which consideration is paid on the basis of specified percentage of turnover, if the essence of composite arrangement is for taking premises on rent, tax will be deducted u/s 194-I. The Board has received a number of queries from various persons regarding the application of the aforesaid provision. These queries have been carefully considered by the Board and the following clarifications are issued for the information and guidance of all concerned. Like Warehousing Charges Rent of a part of Building Rent inclusive of municipal tax, ground rent Non refundable deposit. [ Circular No. 718 date 22.08.1995 ] Non applicability of the provisions of Section 194-I to cooling charges paid by the various customers to the owners of cold storages. [ Circular no. 01/2008 date 10.01.2008] Non-Applicability of the provisions of section 194-I on remittance of Passenger Service Fees (PSF) by an Airline to an Airport Operator. [ Circular no. 21/2017 dated 16.06.2017 ] No TDS on on payment in the nature of lease rent or supplemental lease rent to the IFSC for lease of an aircraft. [ Notification 65/2022 dated 16.06.2022 ] Applicability of TDS provisions of section 194-I of the Income-tax Act, 1961 on lump sum lease premium paid for acquisition of long term lease. it is clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I of the Act. Therefore, such payments are not liable for TDS under section 194-I of the Act. [ Circular no. 35/2016 dated 15.04.2008 ] Rate - Contract - A rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements. [ Circular No. 5 / 2002 , dated 30-7- 2002] Tax credit when rent is paid in advance - The assessees of rent can claim tax credit in getting due credit for tax deducted at source under the provisions of section 199 of the Income-tax Act, 1961 in respect of tax deducted in terms of section 194-I of the Act. [ Circular No. 5/ 2001 , dated 2-3- 2001 ] No tax deduction if payee is Government /local authorities - there is no requirement to deduct income-tax at source on income by way of rent if the payee is the Government. In the case of the local authorities and statutory authorities referred to in para 3 of this circular, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax-exempt status under clause (20) or (20A) of section 10 on the basis of a certificate to this effect given by the said authorities. [ Circular No. 699 Dated 30/1/1995 ]