Wednesday, June 6, 2012

TDS ON RENT SECTION 194I NOTES CASE CIRCULARS NOTIFICATION


on Wednesday, June 6, 2012

Purview of Section 194I (TDS on RENT)

The person (not being individual or HUF) who is responsible for paying any income to a resident by way of rent is liable to deduct tax at source in case the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to the payee exceeds Rs. 1,20,000/-. Individuals and/ or HUFs who are subject to tax audit are also under obligation to deduct the tax at source [w.e.f. 1.6.1994]. The limit of Rs. 1,20,000/- has been enhanced to Rs. 1,80,000/- w.e.f. 1.7.2010 

Meaning of the word ‘Rent’ 

‘Rent’ means 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 

(a) land; or 

(b) building (including factory building); or

(c) Land appurtenant to a building (including factory building); or

(d) Machinery; or

(e) Plant; or

(f) Equipment; or

(g) Furniture; or 

(h) Fittings

Whether or not any of or all of the above are owned by the payee Explanation (i)to Section 194I.Subletting is also covered.

In case the landlord collects security or advance payment at the time of letting out a building to a tenant on the condition that the deposit will be refunded at the time of vacating the building, such a receipt is not in the nature of income and therefore no tax is to be deducted at source u/s 194I. 

However advance rent (not in the nature of refundable) paid is subject to tax deduction.Moreover where any such rent is credited to ‘Suspense Account’ or to any other account shall also be liable to deduct tax at source.

Persons liable to deduct tax at source 

Any person not being an individual or a H.U.F. who is responsible for paying to a resident any income by way of rent is liable to deduct tax at source as and when aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year exceeds Rs. 1,80,000/-. Individual or H.U.F.s who were subject to tax audit under Section 44AB during the financial year immediately preceding the financial year in which such rent is paid or credited are also liable to deduct tax at source.

Time of deduction and Rate 

At the time of credit of such income to the account of the payee or at the time of payment thereof in cash/ cheque etc. whichever is earlier. Tax is to be deducted at  source at the rates mentioned here-under (w.e.f. 1.10.2009):  


  • (i) For renting of land, building, furniture & fittings :The rate of deduction is 10% 
  • (ii) For hiring of machinery, plant or equipments    :The rate of deduction is 2% 
No cess to be added.Flat rate of 10% /2 % is to be deducted.

Citation of Circulars/ Case Laws 

(1) Departmental Clarifications regarding advance rent etc. 

CBDT has clarified that:

(a) Where tax is deducted on advance rent spread over more than one year, credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years based on the single certificate furnished for tax so deducted on the entire advance rent. 

(b) Where

  • rent gets terminated/ cancelled resulting in refund of balance amount of advance rent to the tenant, or
  • the rented property is transferred by way of sale, lease, gift etc. with the tenant in occupation or otherwise resulting in refund of balance of advance rent to the transferee or the tenant, 
credit for the entire balance of tax deducted at source, which has not been given credit so far, shall be allowed in the assessment year relevant to the financial year during which the rent agreement gets terminated/ cancelled or rented property is transferred and balance of the advance rent is refunded to the transferee or the tenant as the case may be.  
[Circular No. 5/2001 dated 2.3.2001]. 

(2) Municipal Taxes and Ground Rent borne by the tenant
Where Municipal Taxes, Ground Rent etc. are borne by the tenant, no tax will be deducted at source on such payments. 

[Circular No. 718 dated 22.8.1995 (215 ITR (St) 68)] 

(3) Subletting of Land 
Where a person has taken a particular space on rent and thereafter sublets the same fully or in part for putting up a hoarding, he would be liable to deduct TDS u/s 194I and not u/s 194C.

[Circular No. 715 dated 8.8.1995 (215 ITR. (St) 13)] 

(4) Hotel accommodation taken on regular basis 
Where payments made by persons other than individuals and H.U.F. (not covered by section 44AB) for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS. 

[Circular No. 715 dated 8.8.1995 (215 ITR (St) 13] 

(5) Warehousing Charges considered as rent
Warehousing Charges are subject to TDS.

[Circular No. 718 dated 22.8.1995 (215 ITR (St) 68] 

(6) Rent paid to Government etc. whose income is exempt under section 10(20) or 10(20A) 

Rent paid to Government or Local Authorities and statutory Bodies whose income is exempt u/s 10 (20) and 10 (20 A) is outside the purview of TDS

[Circular No. 699 dated 30.1.1995] 

(7) Rental income assessable as Business Income

Rent from leasing out a factory building though assessable as business income, will be liable to deduct at source u/s 194-I. 

[F.N.275/108/95-IT (B) dated 27.2.1997] 

(8) Property owned by co-owners

Tax is deductible from payment by way of rent, if such payment to the payee during the year is likely to be Rs. 1,20,000/- or more. If there are more than one payees, each having a definite and ascertainable share in the property, the limit of Rs. 1,20,000/- will apply to each of the payee/ co-owners separately. The payers and  payee are, however, advised not to enter in to shame agreement to avoid TDS provisions.The Limit of  Rs. 120000/- has been increased to Rs 1,80,000 wef 01.07.2010

[Circular No. 715 dated 8th August, 1995] 

(9) Deposit given to Landlord – notional interest not to be considered :In response to a query whether rent paid should be enhanced for notional income in respect of Deposit given to the landlord, CBDT has clarified that the tax is to be deducted from actual payment and there is no need for 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. 

[Circular No. 715 dated 8.8.1995] 


10. TDS is not applicable on  Service Tax on rent :TDS on service Tax on rent is not applicable .


[Circular No. 04/2008 dated 24.04.2008] 

11.Section 194-I Shall not  cooling charges paid by the various customers to the owners of cold storages.

Read more: http://www.simpletaxindia.net/2008/01/tds-on-cold-storage-rent-194c-or-194-i.html#ixzz1x4Ax63dX

[Circular No. 01/2008 dated 10.01.2008] 

12.SECTION 194-I TDS ON RENT PAYEE MUST HAVE CONTROL OVER ASSET:

[ Chattisgarh State Electricity Board vs. ITO (ITAT Mumbai) ]

Read more: http://www.simpletaxindia.net/search/label/SEC%20194%20I#ixzz1x4Bar3KU

13. TDS on Taxi Charges u/s 194 I is applicable if user has control over Taxi: It is depended on contract details. Few point has been discussed in link here 

14. composite arrangement under franchises agreement not liable for TDS as rent :Delhi High court .  CIT v NIIT Ltd. (Taxpayer) [2009-TIOL-533-HC-DEL-IT],
Read more: http://www.simpletaxindia.net/2009/12/tds-on-rent-composite-arrangement.html#ixzz1x4KoBFpv

9 comments: Post Yours! Read Comment Policy ▼
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  1. is tds applicable to payment made towards hoarding rent paid above Rs.180000/- in a year??

    ReplyDelete
    Replies
    1. The contract for putting up a hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. However, if a person has taken a particular space on rent and thereafter sublets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C. In the case of advertising contracts, tax is to be deducted at the rate of 1 per cent of the gross amount of the bill (including bill of media), and not on that portion of commission paid to the person who arranges release of advertisement, etc.(from 01.10.2009 rate on advertisement contract is 1% if payment to HUF or individual in other case rates are 2 %)

      Read more: http://www.simpletaxindia.net/2010/04/tds-on-contractor-194c-circulars-old.html#ixzz1yuBnbdu7

      Delete
  2. Hi, Our company hiring the Genset from one of the person. Is this section 194I or 194C?. Please help

    ReplyDelete
    Replies
    1. it is generally covered under 194-I

      Delete
  3. Hi all

    I have query regarding TDS on 194I

    For Example I was deducting TDS at 10% till march'2013 but this year aggreement is getting expired on 30th june should i deducted TDS for this FY 13-14 or Not as this amount does not exceed the Exemption Limit of 180000 during the year

    ReplyDelete
    Replies
    1. No need to deduct tax as amount is less than 180000

      Delete
  4. is it tds deyalayduct on hiring rent of mangal karyalay

    ReplyDelete
  5. My company has hired heavy vehicles for internal Material handling purpose on fixed monthly rent under a contract. At present Tds is being deducted u/s 194C & ST is being levied on reverse charge mechanism on 100% of the bill value. The entire ST being charged in the name of the company. Is the TDS & ST treatment correct?

    ReplyDelete
    Replies
    1. if you have hired the vehicle then tax should be deducted under section 194I not under section 194C . However the tax rate is same under both the section i.e 2 % other than Individual /HUF ,where tds rate is 1 % under 194C.
      \
      Further , under which clause you are paying service tax under reverse charge . In our view service tax under reverse charge is not applicable.

      Delete