How To Calculate Tds On Rent

Section 194I- TDS on Rent

Section 194I outlines TDS deductions for rent, primarily targeting individuals earning rental income, ensuring tax compliance and revenue collection.

Written by : Daina Mathew

Reviewed by : Jasmeet Bedi

Jasmeet Bedi

2023-01-06

8032 Views

14 minutes read

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TDS on rent is liable because it constitutes supplementary income for individuals engaged in business, salaried employment, and similar endeavours. The government account should be credited with the deducted tax through any authorised bank branch.

 As per Section 194I B of the Income Tax Act, 1961 mentions that tax @ 5% or 3.75% should be deducted for all the transactions by the Tenant/ Lessee/ Payer of the property at the time of making payment of rent (to Landlord / Lessor/ Payee). The government account should be credited with the deducted tax through any authorised bank branch.

TDS on rent comes under Section 194-IB, as per Finance Act, 2017. Rental income from renting land, building, plant & machinery, furniture & fittings, etc. is subject to Tax Deduction at Source (TDS). 

This blog will walk you through the details regarding TDS on rental income – from the definition to the calculation. Let’s dive deeper into the details. 

Table Of Content:

What is Section 194I- TDS on Rent?

As per section 194I, any person (not being an individual or HUF) paying rent to a resident person is liable for tax deduction at source on rent @ 10% if the annual rent exceeds Rs. 2.4 lakhs.

Earlier, this TDS limit for deduction of tax on the rent was Rs. 1.8 lakhs. However, it was increased to Rs. 2.4 lakhs with effect from the financial year 2019-2020.

What is “Rent” as per the IT Act?

Many people often consider only the rent of a house when they think about the TDS deduction. However, there is more to the definition of rent when it comes to the Income Tax Act. Section 194-I gives an elaborate definition of rent as a payment for the following things:

  • A land

  • Any building, whether residential or commercial

  • Machinery

  • Furniture

  • Equipment such as computer systems, networks

  • Plant for an industrial or manufacturing facility

Should you Deduct TDS on Rent?

Currently, a person who is not an individual or a HUF is liable to deduct TDS on rent of more than Rs. 2.4 lakhs.

In case you belong to the Individual or HUF category, you can deduct the TDS at 5% if the rent that you are giving exceeds Rs. 50,000 per month.

Coverage of Section 194I

 Coverage Under Section 194INot Covered Under Section 194I
Category of Tenant/PayerAny Person Making Rent Payment 
When Rent Payer is Individual/HUFIndividual/HUF whose sales, turnover or gross receipts is more than the limit mentioned under section 44AB (a) or section 44AB (b)Other Individual/HUF
Rent PaymentRent paid to a Resident IndianRent paid to a non-resident person not who is covered under section 194-I

What Rent Payment is Covered under Section 194I? 

As per Section 194I of Income Tax Act 1961 all rent payments above Rs. 2.4 lakhs to an individual or HUF in a financial year are liable for a tax deduction at source (TDS). If the total amount is more than Rs. 1 crore, you should add a surcharge to the TDS. Here are all those types of payment on which TDS on rent limit payment is charged:

  1. Rental Income from Factory Building 
    If you have let out a factory building, you can receive the rent as income from property or business income.  In the case of business income, you will pay the advance tax on this rental income. However, your rent receipts will be subject to TDS under Section 194I in both cases.

  2. Rent Includes Service Charges 
    If you are the owner of a business centre, then the service charges that you receive shall be included in the rent. Hence, these will also be treated as rent and subject to tax deduction.

  3. Both Building & Furniture are Rented 
    If the building and furniture are rented out by two different owners, the TDS shall be deducted only from the building rent.

  4. Rent is not Payable on Monthly Basis 
    The most common mode of rent payment is monthly. However, sometimes you may receive rent in any other mode than a monthly basis. If you receive rent as per different rental periods, TDS shall be deducted as per that period.

  5. Charges Regarding Cold Storage Facility 
    If you provide cold storage facilities, your unit shall be treated like a plant, and TDS shall not be deducted as per the building rent. This condition will not apply to buildings that have been rented out to a cold storage operator to render the services.

  6. Hall Rent Paid by an Association 
    If an association has rented out your property or hall, the TDS will apply if the rental value exceeds ₹2.4 lakhs for the financial year. The limit was ₹1.8 lakhs before FY 2019-20.

  7. Payments to Hotels for Holding Seminars, Including Lunch 
    As a banquet hall or hotel used for seminars and lunch, the charge is usually for catering/meals only. In such a case, the 194I TDS rate will not apply. Instead, section 194C for TDS on contractual payments will be applicable.

Did You Know?

that if the tenant covers expenses like ground rent or municipal taxes, they won't incur any TDS charges on those payments?

Claim Settlement Ratio

Who is Liable to Deduct TDS u/s 194I? 

After the budget of the year 2017, every taxpayer is expected to deduct TDS on eligible rent payments. The limits of TDS-eligible payments differ for different taxpayers. Some of the common ones include:

  • Other than Individual & HUF 
    Any person, other than an individual or HUF, who has paid or is likely to pay the rent to a resident Indian should deduct TDS. The maximum TDS-free amount is Rs. 2.4 lakhs in one financial year (effective from the financial year 2019-20) under section 194I.

  • Individual & HUF Taxpayers 
    In case the monthly rent exceeds Rs 50,000, even the individual and HUF tenants should deduct TDS under section 194IB. TDS rate on rent in this case will be 5% of the rent paid.

TDS Deduction Rates and Exceptions

The Government of India has offered relief at the 1941 TDS rate. Keep scrolling through to know the details:

TDS Deduction Rates 

TDS is deducted when the payer credits "income by way of rent" to the landlord's account. It's important to understand that if rent is paid through cash, cheque, or draft, TDS is deducted at the time of payment. Below listed are the TDS deduction rates:

  • TDS rate on rent paid for plant and machinery is to be charged 2%

  • TDS on rent limit paid for land, building, furniture, or fittings is to be charged at 10%

Note: This benefit of the revised rates is applicable only if you are an Indian resident.

TDS Exceptions 

There are certain conditions in which TDS is not deductible u/s 194I. These include:

  • The annual rent amount does not exceed ₹2.4 lakhs.

  • Rent is made to the government and entities whose income is exempt from income tax under clauses (20) and (20A) of Sec.10.

  • The tenant is an individual or HUF, and the income from the profession does not exceed ₹50 lakh. This also applies to the case if they own a business having a turnover of less than ₹1 crore during the financial year.

  • The film exhibition will be shared between the film exhibitor, who owns the theatre, and the film distributor.

  • If the rented premise is owned by the government, statutory, or local authority, the person making the payment is not required to deduct TDS from the rent.

How Can TDS Calculator Help Calculate TDS on Rent? 

Now, coming back to the eternal question – how can the TDS calculator help find tax-deductible value on rent? Let us understand this with a simple example.

Mahesh pays a rent of around Rs 40,000 to his landlord every month. Now, as per the new revised TDS rate on rent, Mahesh will have to deduce 7.5% of the total amount. But for April and May 2020, old TDS rates will apply.

Here’s how much he’ll need to deduct:

  • TDS on rent (April 2020 and May 2020): Rs. 8,000 (10% of the rent for the first two months)

  • TDS on rent limit (June to March 2020): Rs. 30,000 (7.5% of the remaining 10 month’s rent)

  • The total TDS interest calculator value for the financial year 20-21 will be: Rs. 38,000 (A + B) (You will need to deduct Rs. 38,000 from the rent of March 2020)

  • With this new revision, you too will be able to save money during the crisis. In addition to the government’s relief on TDS, you can also look for other tax saving instruments that can help you save your money legally.

Effect of TDS on Tenant & Owner 

TDS deduction on rent simply reflects on the owner's ITR, and a deduction on total tax liability follows. So, TDS deducted by the tenant reduces your overall income tax liability. 

As a tenant, however, you need to be careful with the deducted money and ensure that you can deposit this money to the revenue department. This deduction does not add to your taxable income, so there is no change in your usual tax liability.

Tax Saving Options 

TDS deduction doesn’t affect your tax liability much. So, you will still need traditional modes of saving taxes. With proper tax planning, you can also reduce the burden of taxes while maximising savings. There are plenty of tax-saving instruments that ensure liquidity and better returns. Here are some options for tax saving under the Income Tax Act:

  • Section 80C - It is by far the most popular section to save tax and has plenty of investment options to use. The section offers to reduce your taxable income by up to Rs 1.5 lakh. Some of the most useful tax-saving instruments include:

    • Unit Linked Insurance Plans: Great for long-term tax-free wealth creation, providing safety to your child’s education goals and boosting your retirement corpus
    • Public Provident Fund (PPF) & Sukanya Sammriddhi Yojana (SSY): One of the safest long-term investment option
    • National Pension Scheme (NPS): Geared for retirement goals, offers equity exposure and dynamic asset allocation. But only works for retirement as the lock-in period ends only when you are 60.
    • Equity Linked Savings Scheme (ELSS): Pure equity mutual funds with three-year lock-in and tax-exemption.

  • Section 24: Interest paid on a home loan up to Rs. 200,000. It helps reduce your tax from house property. So, this is an important section if you are the owner of the let-out property.

  • Section 80E: You can save tax on the interest paid on an education loan.

  • Section 80G: As per this section, you are eligible for a tax deduction on the amounts given as donations to social organisations and NGOs.

    Click here to use - Income Tax Calculator

Due Date For Filing TDS on Rent Return 

 

Quarter endingMonth of deductionTDS Payment Last Day  (FY 2024-25)*TDS Return Due Date  (FY 2024-25)
30th June 2024April 2024
7th May 2024
31st July 2024
May 20247th June 2024
June 20247th July 2024
30th September 2024July 20247th August 202431st October 2024
August 20247th September 2024
September 20247th October 2024
31st December 2024October 20247th November 202431st January 2025
November 20247th December 2024
December 20247th January 2024
31st March 2025January 20257th February 202531st May 2025
February 20257th March 2025
March 2025
7th April 2025 (for tax deducted by govt. office)
30th April 2025 (for other deductors)

Key Timelines for TDS Deductions

Given below are the timelines for deduction of TDS on rent payment u/s 194I:

CaseThe Time Limit for Deduction of TDS u/s 194IIncome Tax Challan Required
If the payment is done by or on behalf of the Government-The same day (without any challan)No
If the payment is done by anyone except the Government-On or before 7 days from the end of the month of TDS deductionYes
If the TDS amount is credited or paid in MarchOn or before April 30Yes
Any other caseOn or before 7 days from the end of the month of TDS deductionYes

Consequences of Non-Deduction/Non-Payment of TDS 

TDS deduction from eligible payments and timely deposit are legal requirements as per Indian tax laws. Non-deduction of TDS or non-payment of TDS can lead to the following consequences:

  • A taxpayer who has to deduct TDS (deductor) shall be liable to pay the interest at the rate of 1% per month, from the date when tax deduction was to be done till the date of late deduction of TDS.

  • In case the tax deductor has deducted the TDS but not deposited the same to the government, s/he shall be liable to pay the interest @ 1.5% per month from the date when s/he had deducted TDS to the date of late deposit of the TDS to the government.

  • In addition, a penalty equal to the amount of non-deduction of TDS /non-payment of TDS shall be imposed on the tax deductor.

Important Points Related to Rent Income Covered Under Section 194I 

Here are some important instructions regarding the deduction of TDS on Rent limit under section 194I:

  • The PAN number of the payee is required for the deduction of TDS on rent under section 194I. In case the landlord or the person who receives rent on his behalf fails to provide the PAN number, then the TDS shall be deducted at the rate of 20%.

  • In case the rent received is exceeding Rs 1 crore and a foreign company is also involved, a surcharge shall be levied on TDS on rent under section 194I.

  • TDS on rent shall be exempt if the payee is a political party/charitable trust.

Tax Deduction at Source (TDS) Rules to Remember 

All individuals or Hindu Undivided Family (HUF) except those who are subject to tax audit under clause a and b of section 44AB, that pay monthly rent more than ₹ 50,000 to a resident Indian are liable to deduct TDS at 5% of the rent under section 194-IB.

Tax should be deducted @ 5% or 3.75% from the rent payment made to the Landlord/Lessor/Payee (depending on the date when payment is made).

TDS should be deducted by the individual paying the rent from the rent payable. This TDS should be paid to the government.

Final Thoughts [H3]

Section 194I serves as a cornerstone in understanding the taxation framework governing rent payments. Understanding the intricacies of Tax Deduction at Source (TDS) on rental income is crucial for both landlords and tenants alike. It's imperative to grasp the 194I TDS rate, deposit deadlines, and potential repercussions for non-compliance.

Glossary:

 
  1. TDS (Tax Deducted at Source): A mechanism under the Income Tax Act where tax is deducted at the point of origin of income. In the context of rent, it refers to the obligation to deduct tax from rental payments.

  2. TDS Rate: The percentage of tax to be deducted at the source from rental payments, as specified under Section 194I of the Income Tax Act.

  3. TDS Refund: A refund of excess TDS deducted, which may occur if the actual tax liability is lower than the amount deducted at source, subject to certain conditions and procedures outlined by the tax authorities.
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Frequently Asked Questions Related to TDS on Rent

No, service tax does not form a part of the income for the owner of the property. Hence, TDS on rent payment shall be deducted under Section 194I without including the service tax.

No, if you have paid rent to government agencies and entities, you need not apply TDS on the payment. However, eligible rent payments to private owners must have a TDS application.

If the monthly rent is more than Rs 2 lakhs, yes you should apply TDS to the payment. If the annual rent payment is Rs 2 lakh TDS will apply only if the amount exceeds Rs 2.4 lakhs as per section 194I of the Income Tax Act.

No, service tax does not form part of the income of the owner of the property. Thus, you should apply TDS only on the land or building rent as per section 194I without including the service tax. 
While TDS is just one more transaction in your rental deal, saving income tax is more compelling cause for your attention. So, deduct TDS or receive rent do not miss out on the tax-saving investments to grow your wealth.

Section 194IA requires the buyer of immovable property over ₹50 Lakh to deduct 1% TDS when making payments to the seller. Section 194IB mandates individuals and HUFs, exempt from Section 44AB audits and not covered by Section 194I, to deduct TDS for Indian resident rent payments exceeding ₹50,000 monthly. 

If your initial financial declarations were lower than your actual investment by the year-end, you may qualify for a TDS refund due to overpaid TDS resulting from the discrepancy. 

U/s 194I, the exemption on tax deduction on rent limit is ₹2.4 lakh per annum. The limit under section 194-IB is for ₹50,000 per month.