A Comprehensive Guide to TDS on Rent

In the realm of taxation, understanding the nuances of various sections is crucial for compliance and financial management. Section 194I of the Income Tax Act, 1961, dealing with Tax Deducted at Source (TDS) on rent, is a significant provision for individuals and entities engaged in renting out properties. This blog aims to elucidate the intricacies of Section 194I, ensuring clarity for those liable to deduct TDS on rent payments

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Key Aspects of Section 194I

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1. Scope of Applicability: Section 194I applies to entities other than individuals and HUFs. It also includes individuals and HUFs with a business turnover exceeding INR 1 Crore or professional receipts over INR 50 Lakhs in the previous financial year.
2. Threshold for TDS Deduction: The limit for TDS deduction on rent for FY 2022-23 is set at Rs 2,40,000. This is an update from the earlier threshold of Rs. 1,80,000, which was applicable until FY 2018-19.
3. Timing of TDS Deduction: The deduction of TDS on rent is required at the time of either crediting the rent to the payee's account or at the time of payment, whichever occurs first.

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Other Conditions on TDS Deduction on Rent

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1. Surcharge Applicability: No surcharge is levied on TDS for rent except in cases involving payments to foreign companies exceeding Rs.1 crore.
2. Cess Applicability: The TDS on rent does not charge any Education Cess or Secondary and Higher Education Cess.
3. PAN Requirement: The tenant must furnish their PAN to the landlord. Failure to provide the PAN leads to TDS deduction at 20% under Section 206AA.

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Defining ‘Rent’ Under Section 194I

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The term 'rent' encompasses payments under any lease, sub-lease, tenancy, or agreement for the use of land, buildings (including factory buildings), machinery, plant, equipment, furniture, and fittings. This definition also includes payments for sub-let properties.

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TDS Rates Under Section 194I

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Exclusions and Special Considerations

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1. Security Deposits: Refundable security deposits are not considered income and hence are exempt from TDS under Section 194I.
2. Advance Rent: Non-refundable advance rent is subject to TDS. Additionally, rent credited to 'suspense account' or any other account is also liable for tax deduction.

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