we shall discuss Income Tax to be deducted on payments of Rent as per
Section 194-I of the Indian Income Tax Act.
‹ Person responsible for paying
any income by way of rent to a resident shall deduct income tax at
source on such payment at the time of payment or credit whichever is
‹ The liability to deduct tax at
source is on any person except individual and HUF. However, individual
and HUF are also covered by liability to deduct tax at source if their books are required to be audited
under section 44AB during the immediately preceding financial year. [The
turnover from business/profession exceeds the limits specified u/s 44AB
during the financial year immediately preceding
the financial year in which the rent is paid or credited].
- As per Circular No.4/2008 dated 28.4.2008, it was
clarified that TDS on rental payments would be required to be made only
on the basic rental amount without including service tax. In other
words, TDS should not be made on the service tax portion of the rent.
However, this analogy is not applicable to TDS under section 194J.
‹ No income
tax is required to be deducted at source if the aggregate amount of rent credited/paid or likely to
be credited/paid to a single payee during the financial year does not
exceed Rs.1,80,000/- from 1.7.2010 (previously it was Rs.1,20,000).
‹ Rates at which tax is required
to be deducted:
Note: As per section 206AA, with effect from 1.4.2010, every person who
receives income subject to TDS under chapter XVIIB (covers all TDS
cases) shall furnish to the deductor, his PAN. If PAN is not so
furnished, the rate of TDS will be at the rates specified in the Act or
at the rates currently in force or at 20% whichever is higher. Please
note that this applies to non residents also.
1. Use of Machinery, Plant or
2. Use of any land or building
including factory building or land appurtenant to a building including
factory building or furniture or fittings
‹ Meaning of Rent for the purposes
of Section 194-I: any payment, by whatever name called, under any
lease, sub-lease, tenancy or any other agreement or arrangement for the
use of (either separately or together) any of the following whether any
or all of them are owned by the payee or not:
2. Building including factory
3. Land appurtenant to a building
including factory building.
‹ Where the assessee-hotel received payments
from corporate customers under an agreement for use of the rooms in the
hotel by such customers on regular basis, such payments would squarely
fall within the term Ďrentí as defined under the Explanation
to section 194-I, and would hence attract deduction of tax at source.
If such deduction results in any hardship or financial burden to the assessee, the proper remedy is
to apply to the Assessing Officer under section 197 for the issue of
certificate for deduction at lower rate or nil rate
- Krishna Oberoi
v. Union of India  257 ITR 105/123 Taxman
‹ The CBDT have clarified that,
while section 194-I would be attracted to payments received for
providing hotel accommodation on a regular basis under lease/licence agreements, the said
provision would not apply to cases where only Ďrate contractí
agreements are entered into, under which only room tariffs are fixed,
because, where an agreement is merely in the nature of a rate contract,
it cannot be said to be accommodation Ďtaken on regular basisí - Circular
No. 5/2002, dated 30-7-2002.
‹ Landing of aircraft or parking
aircraft amounts to user of land of airport and, hence, landing fee and
parking fee will amount to Ďrentí within meaning of Explanation
section 194-I - United Airlines v. CIT 
152 Taxman 516 (Delhi).
‹ There is no requirement to
deduct tax at source if the payee is the Government. In the case of the local
authorities and the statutory authorities, 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
[Circular No.699 dt.30-1-1995].
‹ If there are number of payees
each having definite and ascertainable share in the property, the limit
of Rs.1,20,000/- per
annum (now it is Rs.1,80,000) will apply to each of them individually. [Circular No.718
‹ The tax is to be deducted from
the actual payment and there is no need of computing notional income in
respect of a deposit given to the landlord. If the deposit is
adjustable against future rent, the deposit is in the nature of advance
rent subject to TDS. However, if the deposit is refundable, no tax is
required to be deducted at source. If the deposit is non-refundable, it
also takes the character of payment for the user of premises and is
subject to TDS.
[Circular No.718 dt.22-8-1995].
‹ However, interest-free deposit
given by a tenant to the landlord which has to be adjusted at the time
the tenant vacated the premises forever, cannot be treated as an
advance rent so as to require the assessee
to deduct tax at source therefrom.
P.S.Cars (P) Ltd. v ITO  4
SOT 143 (Delhi).
‹ Warehousing charges are subject
to TDS under section 194-I. [Circular No.718 dt.22-8-1995]
‹ In case of payment to hotels for
rooms hired, if the earmarked rooms are let out for a specified rate
and specified period, they are construed to be accommodation made
available on regular basis and subject to TDS. Similar would be the case, where
a room or set of rooms are not earmarked, but the hotel has a legal
obligation to provide such types of rooms during the currency of the
agreement. [Circular No.5/2002 dt.30-7-2002].
‹ However, where corporate
employers, tour operators and travel agents enter into agreements
with hotels with a view to merely fix the room tariffs of hotel rooms
for their executives/guests/customers.
Such agreements, usually entered into for lower tariff rates, are in
the nature of rate-contract agreements. There is no obligation on the
part of the hotel to provide a room or specified set of rooms. The
occupancy in such cases would be occasional or casual. Hence, mere rate
contracts would not attract TDS under section 194-I. [Circular
‹ If municipal taxes, ground rent
etc. are borne by the tenant, no tax will be deducted on such sum since
the basis for tax deduction at source under section 194-I is ďincome by way of rentĒ. National Panasonic India
(P) Ltd. v CIT(TDS)
 3 SOT 16 (Delhi).
All the information provided above is for informative purposes only.
You are advised to consult your tax consultant before you act upon any
of the above information. In spite of this, if any person acts upon
this information and suffers any loss, we are not to be held liable.
Though all efforts have been made to provide latest information, you
are advised to check latest circulars, latest changes in law etc from
the Indian Income Tax Department.
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