TDS on Rent @ 10% (Section 194I)

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TDS on Rent is liable to be deducted by the person making the payment if the total amount to be paid during the year exceeds Rs. 1,80,000 p.a. This limit of Rs. 1,80,000 p.a. is per taxpayer. So in case, there are 2 co-owners of an asset, this limit would apply for each co-owner i.e. TDS on Rent is liable to be deducted if payment to each co-owner exceeds Rs. 1,80,000 p.a.

Different Rates of deducting tax at source have been prescribed for different types of Assets under Section 194I of the Income Tax Act which have been disclosed herewith

tds rent TDS on Rent @ 10% (Section 194I)

Exception to the above Rule – No TDS on Rent is liable to be deducted if the Payment is being made by an Individual or HUF who is not required to get his Tax Audit done under Section 44AB i.e. the business turnover of the person is less than 40 Lakhs/ 1 Crore.

TDS exclusive of Service Tax

Service Tax @ 12.36% (inclusive of Cess) is liable to be paid if the total amount received by your landlord from 1 or more sources  during the year exceeds Rs. 10 Lakh (irrespective of whether received as Rent or for providing any other service)

Thus, if you are making a payment of Rs. 20 Lakh, you would also be liable to pay Service Tax (inclusive of Cess) of Rs. 2,47,200 and therefore the total outflow from your pocket would be Rs. 22,47,200.

However, earlier there was a confusion regarding whether the Tax to be deducted should be computed on Rs. 20,00,000 or on Rs. 22,47,200. To remove any such confusion – CBDT vide Circular No. 4/2008, dated 28-4-2008 has clarified that Tax is not liable to be deducted at source on the Service Tax paid thereon.

The same has again been clarified by CBDT vide Circular No. 1/2014 dated 13th Jan 2014 wherein they have clarified that TDS on Rent is to be deducted on the amount paid exclusive of Service Tax.

Therefore in the above scenario, the Tax on Rent would only be on the Actual Rent paid and the computation has been shown below

Rent 20,00,000
(Add) Service Tax @ 12.36% 2,47,200
(Less) TDS on Rent @ 10% on amount excluding Service Tax (2,00,000)

Lower/ Nil Deduction of TDS on Rent

The TDS deducted on Rent can be claimed as credit at the time of filing of income tax return and the receiver would only be required to pay the difference in the tax that was actually payable (computed as per the Income Tax Slab Rates) and the TDS on Rent that has been deducted.

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However, if the income tax computed as per the slab rates is less than the TDS deducted, the receiver of rent can request for TDS Refund for the excess TDS deducted.

Alternatively, he may file an application to the Income Tax Officer requesting him that the TDS on Rent be deducted at a lower rate/ Nil Rate so that he does not have to file for refund of excess tds deducted. This application for lower/ nil deduction of TDS is required to be filed in Form 13.

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TDS on Advance Rent

In cases where Advance Rent is being paid by the tenant to the landlord, TDS on Advance Rent is also liable to be deducted. However, the income tax department vie Circular No. 5/2001 dated 2-3-2001 has notified that in cases where

  1. The advance rent is spread over more than 1 financial year, credit of TDS on Rent shall be allowed in the same proportion in which such income is offered for tax based on the single tax credit certificate issued (i.e. Form 16A) for the entire advance rent, or
  2. The asset is sold/transferred by one person to another, credit for the tds on rent which has not been availed till the date of sale/transfer shall be allowed to the new owner.
Moreover, in some cases advance rent is paid and TDS on Rent is also deducted but later the rent agreement gets cancelled resulting in refund of balance amount to the tenant. In such cases, it has been clarified by the CBDT that the landlord in such cases shall state in his ITR Form that TDS Deducted has not been claimed because of cancellation of rent agreement.

Important Points regarding TDS on Rent

  1. The Receiver of Rent shall intimate his PAN Card No. to the Party from whom he is receiving the Payment. If the PAN Card No. has not been intimated, TDS on Rent shall be liable to be deducted @ 20% under Section 206AA
  2. Surcharge is not applicable on TDS on Rent except where payment is made to a foreign company and the amount exceeds Rs. 1 Crore, the Surcharge levied thereon as per the rates in force.
  3. No Education Cess or Secondary and Higher Education Cess is to be additionally charged on TDS on Rent.
  4. If a non-refundable security deposit is being made by the tenant, TDS would also be liable to be deducted on such non-refundable deposit because such deposit represents the consideration for the use of the asset. However, if the deposit is refundable, no TDS would be deducted on such deposit.
  5. If the municipal taxes, ground rent etc are borne by the tenant, no tax would be deducted on such amount.
  6. Where payments are made for hotel accommodation taken on regular basis, TDS on Rent payment shall be deducted.

The Rent received would be taxed under head House Property and various deductions would also be allowed from the rental income earned.

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