Section 194I deals with tax deducted at source on payment of rent. TDS has to be deducted where the total amount paid or credited to the account of the recipient exceeds Rs. 1, 80,000 during the financial year. Any person making payment of rent to resident shall be liable to deduct tax at source under this section.
Rent under section 194I means any payment under lease, sub-lease, tenancy or any other agreement for the use of any land, building, and land appurtenant to a building, machinery, plant, equipment, furniture and fittings, whether or not all or any are owned by the payee.
Rate of TDS:
- Rent paid for Plant, Machinery and equipments attracts TDS @ 2%
- Rent Paid for Land, building, furniture and Fittings attracts TDS @ 10%
The limit of Rs. 180,000 p.a. is per tax payer. So, in case, if there are two co-owners of an asset, this limit would apply to each co-owner i.e. TDS will be deducted for each co-owner if payment to each co-owner exceeds Rs. 180,000 p.a.
Following points should be noted:
(a) If building is let out with furniture & fittings & rent payable is under two separate agreements, composite rent is subject to tax.
(b) If a non-refundable deposit is made by tenant, then TDS is applicable.
(c) If refundable deposit is paid no TDS to be done, but if deposit carries interest TDS on interest will be governed by Sec 194A.
(d) If municipal taxes, ground rent etc. are borne by tenant, no TDS on such sum is required.
(e) Hotel accommodation taken on regular basis by any person other than Individual/HUF will be in the nature of rent and TDS is to be done.
Some Important Case Laws Should Be Noted:
S. 194-I of IT Act, 1961—TDS—The payment of roaming charges by the assessee to the other service providers cannot be considered as rent within the meaning of the Explanation below s. 194-I. Hence, there is no liability on the part of the assessee to deduct tax from the same under that section—Vodafone Essar Ltd. vs. Dy. CIT (2011) 135 TTJ 385 (ITAT-Mum.)
S. 194-I, 194-J of IT Act, 1961—Deduction of tax at source—To decide whether a payment is liable to deduction of tax at source under s. 194-I or under s. 194C of the Act, the sum and substances of the transaction has to be seen. For the payment made by assessee school to transporters for picking up and dropping children and staff of school to and from school to their homes by buses, the provisions of s. 194-I cannot be applied and the assessee may deduct at source under the provision of s. 194C of the Act—Lotus valley Education Society vs. ACIT (2012) 13 ITR (Trib) 61 (ITAT-Delhi)
S. 194C, 194-I of IT Act, 1961—TDS—The transactions being in the nature of contracts for shifting of goods from one place to another would be covered as works contracts, thereby attracting the provisions of s. 194C of the Act. In the present case, the assessee was engaged in the business of transportation of building material, salt, black trap, iron, etc., and it paid a certain amount for hiring of dumpers and deducted tax at source. Since the assessee had given sub-contracts for transportation of goods and not for the renting out of machinery or equipment and thus, such payment cannot be termed as rent paid for the use of machinery and the provisions of s. 194-I of the Act would not be applicable but the provisions of s. 194C are applicable—CIT (TDS) vs. Shree Mahalaxmi Transport Co. (2011) 339 ITR 484 (Guj)
S. 194C, 194-I of IT tax Act, 1961—TDS—Sec. 194-I makes provision for deduction of tax at source where any person who is responsible for paying to a resident any income by way of rent whereas s. 194C of the Act makes provisions for deduction of tax at source where any person is responsible for paying any sum to any resident for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the contract and a specified person. The assessee has carried out freight and transportation works contract with three transporters who transported the goods belonging to the assessee and its clients to various places thought their vehicles. The assessee had not taken the trailers/cranes on hire or rent from the said parties. The assessee has given sub-contracts to the said parties for transportation of goods and not for renting out of machineries and equipment. Thus, the said transaction would fall within the purview of s. 194C as the assessee was responsible for paying the amount in question for carrying out work in pursuance of contracts between the assessee and the transporters and as such was required to deduct tax at source at the rate prescribed under the said section. Thus, Assessee is not an Assessee in default within the meaning of said expression as contemplated under s. 201 of the Act, 1961—CIT vs. Swayam Shipping Services P. Ltd. (2011) 339 ITR 647 (Guj.)
S. 194-I(a), (b) of the IT Act, 1961—Deduction of tax at source—Since there is no material on record to show that rent (tenancy was common, i.e., of four persons) was paid to the conglomeration and thereafter distributed among the co-owners, therefore the case of the assessee covered under s. 194-I(a) of the Act and not by the provisions of of s. 194-I(b) and the assessee rightly deducted tax at source at 15 per cent under s. 194-I(a) of the Act—CIT vs. Lally Motors (2009) 311 ITR 29 (P&H)
S. 194-I of the IT Act, 196I—Deduction of tax at Source—Parking fee paid by assessee airlines to Airport Authority for the use of the land of the airport are definitely “rent” within the meaning of provisions of s. 194-I of the Act—CIT vs. Japan Airlines Co. Ltd.
Deduction of tax at source—Sec. 194-I—IT ACT, 1961—Commissioner of Income-tax, Muzaffar Nagar Vs. Senior Manager, SBI.
Rent
194-I Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of—
(a) two per cent for the use of any machinery or plant or equipment; and
(b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed 180000.00
Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.
Explanation
(i) “rent” means any payment, by whatever name 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
(h) Fittings,
Whether or not any or all of the above are owned by the payee;
(ii) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.