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TDS on Rent-Applicability & TDS Rate - IndiaFilings

Last updated: February 15th, 2020 4:22 PM

TDS on Rent - Applicability and TDS Rate

In this article, we review Section 194-1 of the Income Tax Act, which deals with rent. Rent means a payment under any lease, sub-lease, tenancy or any other arrangement or agreement for the use of any of the following mentioned below, separately or together:

Land.
Building.
Land appurtenant to a building.
Machinery.
Plant.
Equipment.
Furniture.
Fittings.

Who shall deduct TDS on rent?

TDS on rent must be deducted by any person, other than an individual or HUF, making a payment of rent to any resident, if the total rent paid in a year is over Rs.1,80,000. Individuals and Hindu Undivided family, who are covered in Section 44AB (Section 44AB deals with tax audit) are also required to deduct TDS on rent.

Requirement of TDS on rental advance?

Rental advance payments made by the tenant for future reimbursements do not require TDS deduction. However, TDS must be deducted if the rental advance is non-refundable and is to be adjusted in the future.

Deducting TDS on rent

TDS on rent must be deducted either at the time of actual payment of rent or at the time of credit to the account of the payee, whichever is earlier.

TDS Rates for Rent

The following will be the TDS rates applicable for rent:

Plant, machinery or equipment-2%.
Rent of land, building and furniture for individuals and Hindu Undivided Family-10%
Rent of land, building or furniture in case of others-10%.

Note:- No surcharge, education cess or SHEC shall be added to the above rates. Hence tax will be deducted at source at the basic rate. Moreover, the rate of TDS will be 20% if PAN is not quoted, whatever the case may be. Latest TDS Rates applicable for Rent and Other Transactions

Deposit of TDS by Deductor

The TDS deductor must have TAN registration and should remit the TDS deducted as below:

Any payment made by or on behalf of the Government, the concerned entity shall deposit the applicable tax on the same day if depositing without a challan. If the concerned entity deposits the tax with challan, the entity shall deposit on or before seven days from the end of the month from the date of deduction.
For amount credited or paid in the month of March, the entity shall deposit the tax on or before seven days from the end of the month from the date of deduction, along with the challan or by the 30th of April.

TDS Certificate for Rent

All TDS deductors must ensure the proper and timely issue of TDS certificates. TDS certificate must be issued within the following dates:

Non-Government Deductor

The deadline for issuing certificates for the months of April-June would be on the 30th of July.
The deadline for issuing certificates for the months of July-September would be the 30th of October.
Deadline for issuing certificates for the months of October-December would be the 30th of January.
The deadline for issuing certificates for the months of January-March would be on the 30th of May.

Government Deductor

The deadline for issuing certificates for the months of April-June would be the 15th Of August.
The deadline for issuing certificates for the months of July-September would be the 15th of November.
Deadline for issuing certificates for the months of October-December would be the 15th of February.
The deadline for issuing certificates for the months of January-March would be on the 30th of May.

TDS on Long Term Lease - Upfront Lease Charges

Lump-sum lease premium, otherwise known as one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for the purpose of acquiring land rights, or rights of any other property, do not come under the purview of TDS under Section 194-1.

Is TDS applicable for Warehouse Charges?

In a situation where an agreement on usage of land or warehouse is restricted to the usage of services without the provision of any other service, the amount paid will be considered as rent, and not as warehousing service charges.

TDS on Rent Not Deducted

It is only necessary that tax is deducted post payment of rent. A rent payer need not deduct rent on any periodical basis, for example, month-month etc. Deductions, as already emphasized, may only be deducted post payment of rent, which could be on a monthly, quarterly, yearly, or any other basis as agreed. Hence, upon failure to deduct rent every month, the taxpayer shall deduct it every quarter in agreement with the landlord.

When TDS on Rent is NOT Applicable

The following are the cases where tax deduction at source is not applicable on rent:

The total amount of the rent credited shall not exceed Rs.1,80,000 during the financial year.
Individuals and HUF can normally avoid a deduction, except in cases when the individual or HUF engages in a business or profession or liable for a tax audit.
Sharing or proceeds of film exhibition between a film distributor and film exhibitor, where the latter owns a movie theatre
Any taxes payable to the Government would avoid TDS.

Avoiding TDS on Rent - Form 13 - Income Tax

Any person who wishes not to have TDS deducted from rent can apply for an exemption by filing Form 13. On submission of the form to the Assessment Officer, a certificate must be obtained denoting its approval. [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2018/01/Form-13-Avoiding-TDS.pdf" title="Form 13 – Avoiding TDS"] [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2018/01/Form-13-Income-Tax-Act.pdf" title="Form 13 – Income Tax Act"]

Credit for TDS on Advance Rent

On advance rent pertaining to more than one financial year, TDS should be deducted at source in the year of receipt of advance rent. The credit for TDS would be allowed to the assessee on the same proportion in which such income for rent is offered for taxation for different assessment years based on the single TDS certificate furnished for the entire advance rent. On the other hand, the taxpayer receives the credit upon termination or transfer for the entire balance of TDS, when the rent agreement gets terminated in a subsequent year or while transferring the property, and the debtor transfers the balance advance to the transferee or the tenant.

Hotel Rent - TDS Applicability

Payments made for hotel accommodations, taken on a regular basis will be in the nature of rent subject to TDS. On the other hand, if organizations, tour operators etc. enter into an agreement with a hotel or a group of hotels for the purpose of accommodation of employees, guests etc., for a rate as agreed in the contract, it wouldn’t come under the purview of TDS as the rate agreed in the contract would probably be lower as compared to a regular accommodation. However, the employees shall note that the TDS shall apply during the tax audit.

Displaying Advertisement Rent - TDS Applicability

Provisions of TDS won’t be applicable if an assessee displays any advertisement on the hoarding site of others, as such an act is considered to be commercial exploitation of display rights, which has nothing to do with TDS.

Building and Furniture - Let out by Separate Persons

Given a situation where the building is let out by one person, and furniture etc. are let out by another, then the payee must deduct tax under Section 194-1 only from the rent paid or credited for the hire of the building.

New Section 194IB

Section 194-IB mandates tax deduction on any individuals or undivided Hindu family(HUF) monthly rent payment exceeding Rs.50,000, then TDS at the rate of 5% should be deducted at the last month of the year or the last month of the tenancy of the year.

Computation of TDS under section 194IB

For the calculation of TDS under Section 195IB, let us consider the following example. Suppose a person pays rent on Rs.55,000 per month to a landlord, then the TDS deduction shall apply as:

Particulars	Amount(in Rs)
Rent per month	55,000
No of months	12
Total rent paid	6,60,000
TDS @ 5% as per sec 194IB	33,000

As the deduction of TDS applies for once in a year, the rent annually paid= Rs.55,000*12 = Rs.6,60,000 TDS @5 percent = 5% * Rs.6,60,000 = Rs.33,000 Rent paid in last month of the year will be Rs.55,000- Rs.33,000 = Rs.20,000. Note: The taxpayer shall pay Rs.55,000 in all other months.

Remitting TDS

These are the steps to pay tax online by furnishing the form 26QC online. Step 1: First visit the official website www.tin-nsdl.com

Click on the “Online Form 26QC for TDS on Rent.
Select Form 26QC for Payment of TDS on Rent.

Step 2: The portal directs the applicant to the next phase to enter the required information after selecting the form:

Both Tenant and landlord PAN number.
Details of address and contact details
Select financial year in the form based on the date of payment previously done.
Select the tax applicable based on landlords PAN.
Choose the Period of Tenancy.
Select the total rent payable and rent paid in last month.
Enter the date of Payment and TDS amount.
Select the option for “e-tax payment immediately” to pay taxes through the net banking account
Finally select for the Payment option

Step 3: After completing the above-mentioned details, select Proceed. The process shall verify the validity of the PAN.

PAN details will be verified as per the details entered in the Income Tax department database.
Upon providing proper details for ITD, click on the “SUBMIT” button.
After clicking the submit button, the portal generates the Acknowledgement number

Step 4: Proceed with the payment of tax online. The due date for the payment of TDS is on or before the 7th of next month.

Form 16C

TDS certificate is the Form 16C issued to the landlord by the tenant for the deduction of tax which has to be furnished within 15 days from the due date of furnishing Form 26QC. Scroll down for a sample Form 16C document for reference: [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2018/04/Form-16C.pdf" title="Form 16C"]

Penalty for Late Filing TDS Return

A penalty of Rs.200 per day for late filing of form 26QC. In addition, the total late filing fees should not exceed the total amount of TDS. To register a Private Limited Company or Section 8 Company, Click here.