Limit on TDS paid on Rent

Overview 

There is a requirement to deduct TDS on rent in case it exceeds certain threshold limits under different sections of the Income Tax Act. Particularly for rent, there are 3 sections, i.e., Section 194-I, Section-195, and Section 194-IB, which covers TDS on rent. To know more about the TDS rates and the threshold limits for rental payments in different sections, read this blog to get insights about TDS rates and TDS filing of different sections.

What do you mean by TDS on Rent Limit?

The TDS on rent is applicable in case the amount of rent that is paid exceeds the maximum threshold limit of rent. Under Sections 194-I, 194-IB, and 195 of Income Tax act, TDS is deducted and deposited in case the amount rent paid to the landlord exceeds the threshold limit.

TDS on Rent Limit

Here are the TDS rates and calculation for rent as per the category and section for TDS on rent limit:-

Note: If PAN details are not provided by the landlord, then TDS will be deducted at a higher rate of 20%.

How to Proceed with TDS On Rent? u/s 194I,194IB,&195

Here are some steps to follow while paying TDS online and for checking TDS on rent limit:

Step 1: TAN Number Requirement:

For deducting TDS at a rate from the rent amount upfront, you are required to obtain the Tax Deduction and Collection Account Number (TAN) number from the Income Tax Department. This TAN number helps to ensure that the deductor has to deduct TDS at the rate, which is regulated as per the tax regulations. 

Lets understand with the help of table given below about the requirement of Tax Deduction and Collection Account Number (TAN) among various sections for TDS on rent paid u/s 194I, 194IB & 195.

Step 2: Deduct the TDS on the rent amount:

After obtaining the TAN number for deducting TDS on rent paid under section (194I & 195), your next step is to deduct the TDS on the amount that exceeds specified threshold. The TDS would be deducted based on the nature of the property and at a predefined rate mentioned in various sections of Income Tax Act. For example, in case of machinery rent paid exceeds the limit of ₹ 2,40,000 per annum, TDS @2% has to be deducted from the machinery rent as per section 194I, TDS on machinery rent. 

Lets understand how to deduct TDS on rent? Under sections 194I, 194IB & 195.

1. 194I - TDS on rent (other than Individuals & HUF).

1. Firstly, tenants must obtain a Tax Deduction and Collection Account Number (TAN) via NSDL website.
2. Once the TAN is acquired, the person (not being an Individual & HUF) who pays rent to a resident indian (payee) is liable to deduct Tax at source (TDS) if the total rent amount paid or payable during the financial year exceeds the threshold limit of ₹ 2,40,000 per annum. Rate of TDS u/s 194I is 2% for machinery rent & 10% for rent on land & buildings.
3. Individuals or HUF who are covered under Tax Audit u/s 44AB are required to deduct Tax at source (TDS) u/s 194I.

2. 194IB - TDS on rent (by Individuals and HUF).

1. TDS on rent u/s 194IB is required to be deducted @ 2% by Individuals and HUF tenants using challan cum statement in form no 26QC only if the rental payments is made to a resident Indian which exceeds the threshold limit of ₹ 50,000 per month.
2. TDS is deducted, at the time of credit of rent, for the last month of previous year or last month of tenancy as the case may be, to the account of payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier

3. 195 - TDS on rent paid to Non-resident Indians(NRI).

1. Firstly, tenants must obtain a Tax Deduction and Collection Account Number (TAN) via NSDL website.
2. Once the TAN number is acquired, the tenant is required to deduct TDS @ 31.2%(30% + 4% health and education cess) using e-Pay Tax facility on the e-filing portal within the 7th of the following month. The balance of the rent amount (rent amount after deducting TDS) should be paid to the NRI landlord.

Step 3: Deposit the amount to the government:

Upon deducting the TDS on a certain amount that exceeds the specified threshold, respectively, your next step is to deposit the deducted amount with the government within the stipulated time.

Refer the tables given below to know about Time limit for depositing TDS under section 194I, 194IB & under section 195. 

Time to Deposit : TDS on rent u/s 194I

TDS on rent which is deducted u/s 194I and is required to be deposited to the central government. Time to deposit of TDS on rent is given below:

If TDS is deducted on or behalf of the Government, it is deposited on the same day.

For example,Tax on rent is deducted on 15th December and needs to be deposited on or before 7th January. Tax on rent is deducted on 21st March ; needs to be deposited on or before 30th April.

Time to Deposit : TDS on payment of rent by Individuals & HUF u/s 194IB

• Time to deposit TDS on Payment of rent by certain Individuals & HUF is 30 days from the end of the month in which TDS is deducted.
• If TDS is deducted on or behalf of the Government, it is deposited on the same day.

Time to Deposit : TDS on rent paid to Non-resident Indian (NRI) u/s 195 

TDS on rent which is deducted u/s 195 and is required to be deposited to the central government. Time to deposit of TDS on rent paid to NRI is given below:

If TDS is deducted on or behalf of the Government, it is deposited on the same day.

For example,Tax on rent paid to NRI is deducted on 15th December and needs to be deposited on or before 7th January. Tax on rent paid to NRI is deducted on 21st March; needs to be deposited on or before 30th April.

Generally if tax is deducted on or behalf of the government, it is to be deposited on the same day.

For depositing the deducted amount, you don’t need to physically deposit the tax. You can apply to deposit via online mode through the Income Tax Website using e-payment facilities. 

Step 4: File TDS Return Online through the TRACES: 

After depositing the TDS amount online, the next step is to file the TDS returns using various forms prescribed by the Income Tax Department. Lets understand which forms are used for furnishing TDS returns among various sections for TDS on rent with the help of table given below:

These forms are used to supply the details of TDS to the Income Tax Department, which is deducted on rent payment. You can file the TDS returns through an online website called TRACES (TDS Reconciliation Analysis and Correction Enabling System). The foremost goal of the TRACES tool is to allow both payers and deductors to check and reconcile their TDS payments online. 

Step 5: Issue TDS Certificate

After filing the TDS Returns, the next step is to issue the TDS certificate to the payee through TRACES, which can be easily downloaded from the TRACES website within 15 days from the due date of furnishing returns. TDS certificate acts as a proof of deduction and deposition of TDS at prescribed rates mentioned in various sections of Income Tax Act.

Which TDS certificate will be issued among various sections for TDS on rent paid, lets understand with the help of table.

Conclusion 

In conclusion, section 194I, 194IB & section 195 covers the complete details about TDS on Rental payments. It ensures that Tax from such income is appropriately deducted and deposited with the government within the stipulated time frame. Compliance with these sections is essential for both payers and recipients to avoid penalties/fines and interest. In addition to this, in case of all the above mentioned sections if payee i.e., Landlord fails to furnish PAN details at the time of TDS deduction TDS will be deducted @20% that is generally a higher rate from the standard rates as given under sections 194I, 194IB & 195.

Frequently Asked Questions 

1) Can a tenant deduct TDS without the landlord's PAN?

Yes, in the absence of PAN details of Landlord TDS is deducted at a higher rate of 20% under section 206AA. Therefore still tenant can deduct TDS even if PAN is not available.

2) Is TDS on rent applicable to leased equipment and machinery?

TDS on Rent for leased plant/equipment & machinery is 2% on rent amount paid exceeding ₹ 2,40,000 per annum under section 194I, TDS on machinery rent

3) Is TDS on rent applicable on rent in advance? 

Yes, TDS on rent is applicable on rent that is given in advance. Whatever amount is given in advance as a rent amount, TDS will be deducted from the advance rent at applicable TDS rates, as specified in the section. 

4) Does the ₹50,000 rent limit include GST?

No, the GST wouldn’t be included in the basic rent amount for deduction of TDS. Generally, TDS will be deducted from the original amount of rent mentioned in Rent agreement that is exclusive of GST amount.