Tax Deducted at Source (TDS) on rent refers to the tax deducted before payment is made to the landlord. This covers any land as well as land attached to a building. It also includes structures, furnishings, fittings and equipment. Section 194I of the Income Tax Act specifies the rules for deducting TDS on rental payments.
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TDS is only applicable under Section 194I when rent payments exceed a certain limit.
This limit is set at:
Rs 50,000 per month, or
Rs 6 lakh over the course of a financial year
If the rent stays within these limits, there is no need to deduct TDS.
The rate of deduction depends on what is being rented. For plant, machinery or equipment, TDS is charged at 2%. Similarly, for land, buildings, furniture and fittings, the rate is 10%.
What Is Section 194I?
Section 194I of the Income Tax Act outlines the provisions relating to TDS on rent payments. It covers rent paid on assets, including buildings, furniture, machinery and land that is connected to a building.
Regardless of whether rental income is categorised as income from home property or under any other source of income, TDS must be deducted.
The obligation to deduct TDS arises when the rent exceeds the prescribed limit. However, Section 194I does not apply to individuals and Hindu Undivided Families (HUFs) whose:
Business turnover is within Rs 1 crore, or
Professional receipts are within Rs 50 lakh in the preceding financial year
If such individuals or HUFs are not covered under Section 194I and are paying rent to a resident, they are required to deduct TDS under Section 194IB at 2%.
When Should TDS Be Deducted
TDS on rent must be deducted at the earlier of the following:
The time of credit of rental income to the payee's account, or
At the time of actual payment
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Special Case: Payments To NRIs
When rent is paid to a non-resident (NRI), TDS must be deducted at 30%, irrespective of the amount. In addition, surcharge and cess are applicable over and above the TDS rate.
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