Understanding Section 194I: A Comprehensive Guide to TDS on Rent – TDS Rate, Significance, and Conditions

Last Updated : July 12, 2023, 1:43 p.m.

The 194I section concerns the TDS on rent. The provisions define how to treat TDS on rent. According to the 194I section, you can use the word ‘rent’ to define payment as a lease, agreement, sub-lease, etc., to use land, buildings, machines, etc., irrespective of whether the payee owns it. Sub-letting is also a rent payment. Rent is subject to taxation because it is a vital income component for many people. It is necessary to pay the rent on time to streamline the payment of TDS on rent according to the ITA provisions. Want to know more about Section 194I and TDS on rent? Let’s dive deeper into it and grasp the section in detail.

What is Section 194I?

So, what is TDS on rent? The 1994 Finance Act introduced the 194I section. It states that a person who pays rent is subject to TDS. It is essential to note that the tax deducted at the source can be subtracted when the tax paid or received in a given financial year is above Rs.1,80,000. Members of Hindu Undivided Families and individuals are liable to pay the tax deducted at the source at a 5% rate of the overall rent, collected when the rent amount is more than Rs.50,000. Remember that the rent paid to government agencies and entities is exempted from TDS.

Conditions for the Tax Deducted at the Source on Rent

The conditions for TDS on rent are as follows:

• There is no imposition of a surcharge on the tax deducted at source on rent, except when an international organisation is involved, and the payment is more than one crore Indian rupees.
• For tax deducted at source subtraction, the landlord or the individual receiving rent PAN details should be provided to the payee. If PAN details are not provided, the TDS on rent is subtracted at 20% under the 206AA section.
• The tax deducted at source on rent does not charge any education or secondary and high education cess.

Significance of Section 194I

In India, many people purchase properties for investment requirements. The vital motive is to trade the property at a good rate or rent the property for getting rent. Therefore, the collected rent is among the most significant income components for many people, including members of Hindu Undivided Families and individuals in India.

The Finance Minister considered the requirement to introduce Section 194I, which will have the tax deducted from the rent in the 1961 IT Act. In many countries worldwide, the revenue earned from renting properties is subject to TDS.

TDS Rate Under the 194I Section

There is a deduction in TDS whenever the payee credits rent to the landlord’s account. Remember that if you pay rent through cash, cheque, or draft, there is a deduction in TDS on rent during the payment process. Given below is the rate of TDS on rent:

• The tax deducted at source on plant, machinery, or equipment is supposed to be charged at a rate of 2%.
• The tax deducted at source on the paid rent on land, buildings, or both are supposed to be charged at a rate of 10%.
• The tax deducted at source on the paid rent on furniture or fitting is supposed to be charged at a rate of 10%.

Who Should Deduct TDS Under the 194I Section?

The following are liable to deduct TDS on rent under Section 194I:

• If you pay rent to a resident, you are liable to deduct TDS.
• Members of Hindu Undivided Families and individuals responsible for tax audits are liable for tax deducted at source under Section 194I.
• The tax deducted at source must be subtracted if the overall rent amount paid or about to be paid income during the fiscal year by the liable person to the payee’s account is more than Rs.2,40,000. The mentioned limit was Rs.1,80,000 until the fiscal year 2018-19.
• In 2017, a new section was introduced where an individual or members of Hindu Undivided Families who do not come under the tax audit, paying rent to a resident of over Rs.50,000 monthly, are responsible for deducting tax deducted at source at a rate of 5%. The new modification has been effective from 1st June 2017. Nonetheless, the tax deducted at source provisions is covered under the 194IB section.

Conclusion

To conclude, many aspects of the 194I section of the 1961 IT Act exist. Entities should know more about these factors. It will aid them in accounting for the tax deducted at the source on paying rent better and further let them streamline the payment process and claim refunds conveniently. The provisions of the 194I section define how a TDS on rent should be deducted. The mentioned section is mainly for people who profit from renting or subletting a part of their property. The rent received on subletting or renting a property is subject to tax deducted at the source because it is an extra income source that self-employed individuals or salaried employees earn.

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