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TDS | Rent (Sec 194-I)

 

 

 

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 Here 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 earlier.

 

     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:

 
Important 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 Equipment: 2%

2.      Use of any land or building including factory building or land appurtenant to a building including factory building or furniture or fittings :10%


     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:

 

1.      Land

2.      Building including factory building

3.      Land appurtenant to a building including factory building.

4.      Machinery

5.      Plant

6.      Equipment

7.      Furniture

8.      Fittings

 

     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 [2002] 257 ITR 105/123 Taxman 709 (AP.).

 

     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 (i) to section 194-I - United Airlines v. CIT [2006] 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 said authorities. [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 dt.22-8-1995]

 

     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 [2005] 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 No.5/2002 dt.30-7-2002].

     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) [2005] 3 SOT 16 (Delhi).

 

Disclaimer: 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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