1. What are the provisions relating to TDS on rent? From which date same are applicable?
As per the Finance Act, 1994 the provisions of TDS on rent have been introduced w.e.f. 1.6.1994. The salient feature of Sec. 194-I are as under:-
i) The provisions are applicable only in cases where the person making the payment of rent is an individual or HUF who is required to get his accounts audited u/s 44AB in the immediately preceding financial year (w.e.f. 1.6.2002) or any other person responsible for paying to a resident any income by way of rent. Prior to 1.6.2002 no individual or HUF was liable to deduct TDS from rent.
ii) The TDS is required to be deducted in case the rent paid or payable to a particular person during a financial year exceeds Rs. 1,80,000 w.e.f.1.7.2010 (upto 30.6.2010 the limit was Rs. 1,20,000).
iii) A facility has also been provided to obtain a certificate from the Assessing Officer for deduction of income-tax at a lower rate or for no deduction of income-tax in appropriate cases by making application in From No.13.
iv) For the purpose of this section rent means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or factory building together with furniture, fixture, fittings and land appurtenant thereto. It will not be relevant whether the payee is the owner of the building or not?
W.e.f. asst. year 2007-08, the Taxation Laws (Amendment) Act, 2006 have enlarged the scope of rent for the purpose of Sec. 194I, so as to include machinery, plant and equipment, whether rented together with building or separately, irrespective of the fact whether they are owned by the payee or not?
v) The rates of TDS on rent are as under:
|Particulars||Rate upto 30.09.09||Rate w.e.f. 01.10.09|
|a) Use of any land, building, furniture or fittings||15% (when payee is individual or HUF) 20% in other cases.||10% for all assessees|
|b) Use of plant, machinery or equipment||10% (from 1.6.07 to 30.9.09) prior to 1.6.07 the rate was same as rent of land and building||2% for all assessees|
|W.e.f. Financial Year 2009-10, education cess or higher education cess is not required to be deducted at source in case of payment to domestic companies or any person who is resident in India. However, education cess is to be deducted in case the payment is made for salary.|
vi) W.e.f. 1.4.2010, where the deductee fails to furnish its PAN or furnishes an incorrect PAN to the deductor, the deductor will be required to deduct tax at higher of the following rates: source : www.trpscheme.com (As amended by Finance Act, 2013)
a. At the rate specified under the Income Tax Act; or
b. At the rates in force; or
c. At the rate of 20%.
2. Will tax be deducted from service tax included in rent?
Service tax paid by the tenant does not partake the nature of income of landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore tax deduction at source (TDS) under Sec. 194-I of the Income-tax Act would be required to be made on the amount of rent paid/payable without including service tax.
Further No TDS on service Tax: As per circular 01/2014 dated 13.01.2014 TDS is not applicable on service tax part if service tax is shown separately.
3. What does the “rent” mean for the purpose of Sec. 194-I?
“Rent” means any payment, by whatever named called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together)any,-
a. Land; or
b. Building (including factory building); or
c. Land appurtenant to a building (including factory building); or
d. Machinery; or
e. Plant; or
f. Equipment; or
g. Furniture; or
whether or not any or all of the above are owned by the payee.
In other words, besides tax on land and building, tax shall now also be deductible for leasing out or hiring of machinery, plant, equipment, furniture and fittings whether given separately or together. Further, it shall be deductible whether or not any or all of the above are owned by the payee?
4. What are the circumstances under which no tax is to be deducted at source on rent as defined under Sec. 194-I ?
No tax is required to be deducted at source under this section if the following conditions are satisfied:
A) Where aggregate amount of rent does not exceed Rs. 180,000:- No tax is to be deducted if the aggregate amount of rent in the previous year does not exceed Rs. 180,000.
B) Rent paid to the Government and certain entities:- No tax at source needs to be deducted from payments by way of rent made to Government and entities whose income is exempt from income-tax under clauses (20) and (20A) of Sec.10 of the Income tax Act.
C) Certain entities required to file return under Sec. 139(4A) or 139(4C):- As per rule 28AB certain entities who are required to file return of income under Sec. 139(4A) or 139(4C) may apply in Form No. 13 for no deduction of tax at source provided certain conditions are satisfied.
D) Certain entities whose income is unconditionally exempt under Sec. 10:- In case of certain entities whose income is unconditionally exempt under Sec. 10 and who source : www.trpscheme.com (As amended by Finance Act, 2013)
are statutorily not required to file return under Sec. 139 there will be no requirement for TDS, since their income is any way exempt.
5. Where is the limit of Rs. 180,000 for non-deduction of tax at source applicable in case of each co-owner?
Where the share of each co-owner in the property is definite and ascertainable, the limit of Rs. 180,000 will be applicable to each co-owner separately.
6. What are the provisions regarding low deduction or no deduction of tax on rent under Sec. 194-I ?
Any person to whom rent is payable may make an application in Form No.13 to the Assessing Officer and obtain such certificate from him, as may be appropriate, authorizing the payer not to deduct tax or to deduct tax at lower rate.
As per Sec. 206AA(4), w.e.f. 1-4-2010, no certificate under Sec. 197 for deduction of tax at Nil rate or lower rate shall be granted, unless the application made under that section contains the Permanent Account Number of the applicant.
7. What is method of taking credit of TDS on advance rent ?
On advance rent pertaining to more than one financial year, the tax is deducted at source in the year of receipt of advance rent. The credit for TDS shall be allowed to the assessee in the same proportion in which such income from rent is offered for taxation for different assessment years, based on the single TDS certificate furnished for the entire advance rent.
However, if the rent agreement gets terminated in a subsequent year or rented property is transferred and the balance advance is refunded to the transferee or the tenant, as the case may be, the credit for entire balance of TDS which has not been given credit, shall be allowed in the year of termination.