A person other than an Individual or HUF paying rent for building,plant & machinery, furniture & fixtures are required to deduct TDS on rent payment. These deduction would subject to a marginal limit proposed by government.The Exemption limit is increased to 240000 in the Finance Bill 2019 (Applicable for the Assessment year 2020-2021) from an earlier limit of 180000 ( Applicable to Assessment year ,2018-2019 & 2019-2020).
The individual, HUF undergone Tax audit during previous financial year Under section 44AB are also responsible for the deduction.
Section 194 IB TDS on Rent for Individuals & HUF
The individual ,HUF paying a monthly rent of more than 50000 in a month or in part of month during previous Year is compulsorily liable to deduct tax @ 5 % even if they are not coming under the ambit of Section 44AB. This section come into effect from 01-06-2017
What is rent as defined in section 194-I
The nature of rent as per this section is
- The income shall be given as cash or credited to his/her account or deemed to be received from the the tenant on account of lease, sub-lease,tenancy or any other agreement or arrangement
- Payment is made either for the use of only land or building including a factory building , and land appurtenant to a building (including factory building),machinery plant equipment furniture and fittings. It is is irrelevant that such assets are owned or not by the person who receives such rent.
- The Security deposit given at the time of renting a building or asset is not chargeable to tax if it is refunded at time of vacating the rented property or terminating the agreement.
- Advance rent paid shall be charged to tax, Tds shall be deducted.
- Service charge paid to a business center is considered as rent.
- When a building is let out by one owner and the furniture is let out by another owner. The payer of Income shall deduct tds only from the payment towards building only.
- Payment towards the use of hall by an association of person is liable to deduct tds if the payment crosses the exemption limit.
Exemption Limit for Deduction of TDS on rent.
It is important that Income tax rule, tells us some exemption limit for deducting tds, In our case Exemption of TDS on rent is Rs 180000 per annum For The AY-2019-2020. This is 240000 in the Assessment Year 2020-2021. That is,assume X company is paying rent Less than 180000 in FY 2018-19 & in FY 2019-2018 Paying less than 240000, the company is not liable to deduct and pay TDS.
The tds limit in the earlier days was 120000 in the FY -2009, This was increased to 180000 from 01-07-2010.
TDS deduction in case of Co-owner: There might be situations ,a premises have co-owners. In such case, the limit is applicable for each owners. That is each owner should receive more than the exemption limit.
Exemption category for TDS Deduction.
TDS shall not be deducted if rent paid to the Individuals / HUF who are not coming under the ambit of Tax audit Under Section 44AB. and getting a monthly rent of less than 50000.00 INR.
Rate of Tds On Rent
The prevailing rate of TDS rent is as follows. The
|2%||Rent paid for the use of Machinery,Plant & Equipment|
|10%||Rent paid for the use of asset other than above, like building, Land Etc|
|5%||Rent paid for the use of asset other than above, like building, Land etc, only if the monthly rent is exceeding Rs 50000 paid by Individual/HUF who are not liable for Tax audit.|
Example of TDS on Rent?
An Examples will help you understand things easily.
X company Ltd runs their business on a rented building, and monthly rent is 25000 INR. The building owner is an individual MR.A.
As per Income tax rule Tax to be deducted on certain kinds of transactions, a certain percentage from source. In this example X Company is paying Rent which is the source of Income to MR.A. and it is the duty of Payer to deduct a prescribed percentage from the income source and deposit to the government on behalf of the deductee. Deductee is a person from whom the tax is deducted.
So, The total of Rent paid in our example is 12 x 25000= 300000 Which attract TDS @ 10% . The exemption limit as per AY -2020-2021 is Rs – 240000.
The deduction can be done at the time of making payment /crediting the income to the lesser account monthly /quarterly/ yearly @ 10 % . The section does not makes it compulsory to deduct tds monthly.
- Section 192 -TDS on salary and calculation
- Section 194J TDS on Fees for professional and technical services
- Section 194 BB TDS on winning from Horse Race
Time limit for TDS payment to the Government
- Where the rent is paid by a government department or on behalf of Government ,The deducted amount shall be deposited on the same day without using any challan.
- Where rent payment is made by any other entity other than a government including persons shall be deposited on or before 7th day of the next month.
- If payment is made in the month of march, The deposit to the government shall be fixed on or before 30 th april of the next financial year.
Lower Deduction or NIL deduction of TDS on rent
There are situations where tax payers pays TDS but do not comes under the taxable Income slab. In such case he can apply in Form 13. to get certificate of lower deduction or non deduction in Form 15 H for non deduction of TDS.
TDS to be deducted on advance rent paid.
As per Income tax rule, TDS on advance rent also be deducted. What should be case If the advance rent paid for the coming financial years?.
- In such case credit shall be availed in the same proportion in which the rent is received.If TDS is spread over more than one year then you have to show your rental income in next year and claim TDS accordingly.
- In case the asset is sold,credit for the TDS on rent which has not been availed till the date of sale shall be allowed to the new owner.
What to do when advance rent paid but rental agreement got cancelled?
In such cases the rent advance paid shall be refunded and the tenement, the owner of property shall state that” The TDS deducted has not been claimed in his ITR Form.
Important things to be taken care by the tenant or payer
- The PAN number of the landlord shall be collected and verified. This would be asked while you furnishing the details to the income tax department. If the PAN is not provided to tenant or failed to furnish TDS shall be deducted at a higher rate of 20 %.
- If the payee or landlord or the owner of the property is a non resident, the liability to deduct tax comes under section 195 of income tax act.
- Issue a Form 16C or certificate of TDS to the landlord,Within 15 days from the due date of furnishing of Form 26QC.
Things to be note by a landlord or payee
- Provide your PAN to the tenant for furnishing details to the income tax department to avoid 20 % deduction.
- Verify the tax deposited by tenant with the help of Form 26 AS.
- Ensure timely the Form 16C from tenant