TDS on Rent

The real estate sector contributes significantly to India's economic growth and offers numerous income opportunities. One of these is rental income from your property. You can earn money if you own land, plant and machinery, or any other immovable or movable assets.

But do you know rental income is subject to Tax Deduction at Source (TDS) under section 194I of the Income Tax Act? If not, read this article to understand the concept of TDS on the rent of the property.

What is TDS on Rent As Per Section 194I?

TDS on rent, as outlined in Section 194I of the Income Tax Act, is the Tax Deducted at Source that must be withheld by individuals or entities who pay rent exceeding a certain threshold in a financial year.
This provision applies to rent payments made for the use of land, buildings, plant and machinery, equipment, furniture, fittings, or any other property for business or professional purposes.
As per Section 194I, if the annual rent exceeds ₹2,40,000, the payer (tenant) is required to deduct tax at source at the rates provided by the income tax laws before making the payment to the landlord. The rate of TDS on rent for the use of land, buildings, or both is 10%, and for plant and machinery, equipment, furniture, fittings, or any other property, it is 2%.

What are the Various Payments that are Covered Under Section 194I?

• Land: This encompasses any type of land, whether used for agricultural, residential, commercial, or any other purpose.
• Building: This includes any structure or tower, including residential houses, office spaces, warehouses, workshops, and any other type of building.
• Plant and Machinery: This covers all industrial machines and equipment, manufacturing apparatus, and any other heavy or light machinery used for business purposes.
• Equipment: This pertains to any tools or apparatus that are used for specific tasks within various sectors, including medical, construction, and IT equipment.
• Furniture and Fittings: This includes movable assets like chairs, tables, desks, and other furnishings, as well as fixtures that are integral to the functioning of a space but can be removed without causing damage to the property.
• Any other property: This is a broad category that encompasses any other type of property not specifically mentioned but is utilised in a business or professional context, such as parking spaces, godowns, etc.

Rate of TDS on the Rent of the Property

The rate of Tax Deducted at Source (TDS) on property rent, as per the Income Tax Act, is determined by the type of property being rented out:

• For the rent of land, buildings, or both, the TDS rate is 10% if the annual rent exceeds ₹2,40,000.
• For renting plant and machinery, equipment, furniture, or fittings, the TDS rate is 2%.

What are the Scenarios in Which the Provisions of Section 194I are not Applicable?

Section 194I of the Income Tax Act that is TDS on rent payment does not apply in the following scenarios:

• Individuals or HUFs Not Subject to Tax Audit: When rent is paid by individuals or Hindu Undivided Families not audited in the previous financial year.
• Agricultural Land Rent: Payments for agricultural land use are exempt from TDS on rent.
• In-kind Payments: TDS is not applicable if rent is paid in forms other than money.
• Rent Below ₹2,40,000: No TDS deduction if annual rent is under this threshold.
• Personal Use Property: Properties rented for personal use are exempt.
• Government Entities: Some government transactions may be exempt from these TDS requirements.

Time Limit for Transferring TDS

Under Section 194I of the Income Tax Act, the time limit for transferring the Tax Deducted at Source (TDS) on rent payments to the government is as follows:

• For TDS deducted in any month from February to April, the transfer should be completed by the 7th day of the following month.
• For TDS deducted in March, the transfer should be made on or before the 30th of April of the next financial year.

To Conclude

TDS on the rent is mandatory as per the tax laws. If your rent payee fails to deduct TDS, he will be subject to a 1% monthly penalty until the tax is deducted in full. A monthly interest penalty of 1.5% will be levied if the TDS deposit with the government is delayed. 

To know more, please read the relevant articles at our website PNB MetLife.