What is Section 194I?
Section 194I of the Income Tax Act mandates that certain individuals and entities deduct Tax Deducted at Source (TDS) when paying rent to a resident. This ensures that tax is collected at the source of income.
Applicability
TDS under Section 194I applies when:
- The annual rent exceeds ₹2,40,000.
- The payer is:
- A company or firm.
- An individual or Hindu Undivided Family (HUF) subject to tax audit under Section 44AB in the preceding financial year.
Definition of Rent
Under Section 194I, ‘rent’ includes payments made under lease, sub-lease, tenancy, or any agreement for the use of:
- Land or building (including factory buildings).
- Land appurtenant to a building.
- Machinery, plant, or equipment.
- Furniture or fittings.
TDS Rates
The TDS rates under Section 194I are:
- 2% for rent on plant, machinery, or equipment.
- 10% for rent on land, building, furniture, or fittings.
Note: If the landlord does not furnish their PAN, TDS is deducted at 20% under Section 206AA.
How to Calculate TDS on Rent
Example:
- Monthly Rent: ₹60,000
- Annual Rent: ₹60,000 × 12 = ₹7,20,000
- Since ₹7,20,000 > ₹2,40,000, TDS is applicable.
- Type of Asset: Building.
- Applicable TDS Rate: 10%.
- Monthly TDS: ₹60,000 × 10% = ₹6,000
- Net Payment to Landlord: ₹60,000 – ₹6,000 = ₹54,000
Time of Deduction and Payment
- When to Deduct: At the time of credit or payment, whichever is earlier.
- When to Deposit:
- For Non-Government Deductors: By the 7th of the following month.
- For March Deductions: By April 30th.
Compliance Requirements
- TDS Certificate: Issue Form 16A to the landlord within 15 days of filing the TDS return.
- TDS Return: File quarterly TDS returns in Form 26Q.
Consequences of Non-Compliance
- Failure to Deduct TDS: Interest at 1% per month from the date tax was deductible to the date it is deducted.
- Failure to Deposit TDS: Interest at 1.5% per month from the date of deduction to the date of deposit.
Exemptions
TDS under Section 194I is not applicable when:
- Rent paid does not exceed ₹2,40,000 in a financial year.
- Rent is paid to the government or certain specified entities.
- Rent is for agricultural land.
Understanding and complying with Section 194I ensures smooth financial operations and adherence to tax regulations.
