Are you a taxpayer who has taxable income from rents? Do you rent out real estate, buildings, industrial plants, or machinery? Then you must keep on reading to know more about TDS on rent payments and income before filing Income Tax. It will help you understand your deductions and relaxations to reduce your tax burden.
Section 194-I of Income Tax Act, 1961
Any person or party who leases out property is the Renter, and any person or party who takes property on leases is the tenant. TDS on rent is applicable only for the Renter as they are the party receiving payment. They have to show this rent as a source of income in their ITR filings.
Section 194-I states that every person is liable to pay TDS on income from rent. The slab for TDS on rent is Rs. 2,40,000 per assessment year. Even individuals and HUFs are liable to pay TDS on rent payments received. But there are different tax rates and conditions for each category.
According to this section, rent is any income you get from leasing any personal assets. Depending on the occasion, these assets can be further sub-leased or have separate agreements. The types of property that come under this section are :
- Non-agricultural land
- Any structure or industrial factory
- The land around a building or factory
- Industrial plant
- Industrial or other equipment
According to this section, any payments made as advance rent also attracts TDS on rent. So, if you charge advance rents for a month or even a year, that income comes under this category.
But it does not apply to refundable payments. A rent deposit is a type of refundable income. Some people keep a rent deposit during the agreement period, which is refundable. So, when the agreement is over, the owner has to pay back this deposit. As there are no interests or charges on his deposit, there are no taxes on it. No matter how high, all returnable deposits are Tax exempted.
TDS on Rent Rate of Section 194-I of Income Tax Act, 1961
As per this law, from AY 2021, the rent for industrial plants and machinery attracts a tax of 2%. All other properties like land, structures, furniture, and fittings have a 10% tax. This 10% tax can be relaxed up to 5% if the individual or HUFs who don’t require a tax audit has more than rent of Rs. 50,000 per month.
The exemption limit for TDS on rent is Rs. 40,000 per year and Rs.20000 per month. If you are an ITR filing taxpayer, deductions are refundable for any amount below this limit. You can add those details in your ITR filing to get a refund.
Specifics of Section 194-I of Income Tax Act, 1961
TDS on rent is applicable in various cases of renting out properties. All these properties have different exemptions, rates, and by-laws. Do keep reading to know the particulars of each property and scenario.
TDS on Rent of Factory Building
The TDS on Rent is applicable for all factory buildings. It is because such rents are a source of income for the Renter. And these payments, when conducted through banks, automatically attract TDS. If the Renter’s total income from rent is lower than the exemption limit, they can submit an application to the bank. The Renter certifies that they don’t have more income than the exemption limit in this application. This application is in correspondence with the regional Income Tax Officer. So, any further rent payments will not have TDS deductions at the bank.
In most cases for factory buildings, renters put forth a condition of agreement deposit. This agreement deposit is fully refundable at the end of the agreement when the tenant vacates the property. This income does not have any added interests upon repayment. It is fully tax exempted.
TDS on Service Charges
All service charges payments by the tenant to the Renter are eligible for TDS as these charges are non-returnable payments for property maintenance. So, any amount collected from the tenant as any charge is eligible for TDS.
TDS on Rent for Different Entities
Sometimes the tenant of a building is one entity, and the tenant of the furniture or fittings inside it is another entity. In such cases, the payment received from the tenant of the building is only eligible for TDS. The rent on the furniture and fittings inside the said building doesn’t require tax deductions.
TDS on Rent for semi Bi-Annual or Annual Rent Payments
Section 194-I does not specify the interval between rent payments. So, no matter the interval monthly, quarterly, annually, or annually, it all attracts TDS on rent payment. Sometimes the Renter levies the entire rent for the duration of two or more years. In such cases also the entire amount is eligible for TDS deduction.
TDS on Rent for Cold Storage Facilities
Even rents for cold storage facilities have TDS deductions. They are not considered buildings but as industrial plants, as they have refrigeration units, electrical items, and other equipment. So, they come under the plant category of section 194-I.
TDS on Rent for Halls
All payments received as rent for halls without food accommodation are taxable as TDS. Even if the duration of a lease is as few as some hours or for several weeks, all income comes under this section. The limit for such halls is Rs. 2,40,000 per annum.
TDS on Rent for Hotel Halls with Lunch
TDS on rent for halls with food and catering is not levied. It is because only halls and enclosures come under this section. And such food serving halls only take charge of food and not the use of the premises. Food charges come under another section of 194. So, there are no deductions for halls with food as per section 194-I.
Now you must know all the parameters where you have to pay TDS on rent payment. This knowledge will help you to assort your finances and incomes from rent. A better understanding will allow you to reduce the tax amount you pay each year as TDS.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
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