Section-194-I TDS On Machinery

Overview

TDS on machinery rent is tax deducted at source from the rental payment of machinery, which is required to be deposited with the government. On crossing the threshold limit of Rs. 2,40,000, the TDS would be deducted by the deductee and deposited with the government within the given time period. Therefore, it is recommended to approach a chartered accountant to help you with filing a TDS return and obtain a TDS certificate. In this article, we will provide you with complete insights into how to proceed with the TDS on rent for machinery.

What is Section 194-I TDS On Machinery Rent ?

TDS on machinery rent under Section 194-I of Income tax act, 1961 states that the tenant who gains the right to occupy the machinery on lease or rent will deduct the tax at source from the rental payment of machinery. Before the payment is made to the resident landlord, it is important to deduct a tax from the rental payment that would be ultimately payable to the central government.

The term 'rent' ‘is’ referred to by name within the criteria for any tenancy, lease, sublease, agreement, or arrangement that facilitates the utilization of land, buildings, machinery, equipment, or fitting.

Definition of Machinery under the Income Tax Act

While the term ‘machinery’ is not defined under the Income Tax Act by itself but rather is defined in relation to depreciation and capital expenditures.

• Depreciation on machinery: The written-down value (WDV) method will be applied to machinery when calculating depreciation.
• Under the Income Tax Rules (Appendix I), machinery is classified into different categories. General machinery and specific machinery are categorized as machinery under the Income Tax Act.

The term machinery typically refers to any mechanical device or apparatus that helps in industrial or business production.

Applicability of TDS on Machinery Rent

Section 194-I is applicable to:

• Any person other than individual and HUF
• Individuals or HUFs are required to deduct TDS if last year Turnover is greater than 1 crore in the case of business or gross receipts were greater than 50 lakhs in the case of profession. Individuals or HUFs who are liable for tax audits are responsible to deduct tax at source under Section 194-I.

Simplification:

Any person other than individual & HUF like company, LLP, partnership firms or those individuals or HUFs liable for tax audit u/s 44AB pays rent on machinery to resident person which exceeds Rs. 2,40,000 per annum is required deduct TDS @ 2% at the time of rental payment or when rent is due.

Arrears and advance rent u/s 194-I

• Arrears of machinery rent received during the current year shall also be considered for the purpose of deducting TDS u/s 194-I.
• Even advance rent shall also be subjected to TDS in the year of payment.

Section 194-I: TDS Rate on Machinery Rent

If a PAN card is not provided by the resident landlord, then the TDS rate will rise to 20%.

Section 194-I : Threshold Limit on Machinery Rent

No TDS will be deducted if the rent amount does not exceed Rs 2,40,000 per annum and hence TDS will be deducted if rent payment is in excess of Rs. 2,40,000 per annum.

Time of Deduction for TDS on Machinery Rent u/s 194-I

Under Section 194-I, TDS on machinery rent shall be made when a payee is about to receive rental income from the payer (tenant) or at the time of payment through cash or cheque, whichever is earlier.

Time limit of depositing TDS on Machinery Rent

Here is the time limit for depositing TDS on machinery rent:

• If the rent amount is credited or paid in the month of March: on or before April 30
• In any other case, on or before 7 days from the end of the month in which the deduction is made.

Documents required for TDS on Machinery Rent u/s 194-I

Here are the 4 documents that are required at the time of TDS return filing for TDS on machinery rent under Section 194-I:

• Copy of the rent agreement
• PAN of the resident landlord
• Copy of the TDS Challan
• Proof of Deposit of TDS

Exemption under TDS on Rent u/s 194-I

Following are the exemptions under TDS on rent for machinery under Section 194I:

• When tenant is individual or HUF: Under Section 194-I, when the rent is due or paid by an individual or HUF not carrying on a business that is audited under income tax law.
• Rent that does not exceed Rs 2,40,000 per annum during FY: When the machinery rent for the financial year is below Rs 2,40,000 per annum, there is no need for deducting TDS .
• No TDS on refundable deposits. However, "non-refundable deposit” shall attract TDS under this section.
• Lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent and which are paid for acquisition of long term lease rights, are not in the nature of rent within the meaning of Section 194-I , therefore no TDS .

Penalties and Fines under TDS on Machinery Rent

Here are the penalties and fines under TDS on machinery rent u/s 194-I:

• TDS is not deducted: If a deductor has not deducted the TDS from the payment of the rent for machinery, it charges interest of @1% per month till the date TDS is deducted.
• TDS is deducted but not deposited: If a deductor has deducted the TDS from the machinery rent but has not deposited the collected tax to the government, then it charges interest @1.5% from the date when tax is deducted to the date of deposition.

Why Choose Bizfoc for TDS?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS for the purchase of property. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations
• Prescribe forms as per the necessity
• Helps in accurate computations for TDS computations and returns
• Tailored advice and guidelines for TDS filing

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

TDS on machinery rent is a crucial tax implication, which is done under Section 194-I. The TDS deduction is crucial for maintaining the tax regulations and standards under the Income Tax Act. Filing TDS for machinery rent by an individual himself can be a cumbersome and tiring process So, it is advisable to get the TDS filed with the help of CA professionals and experts to get ease in filing TDS.

Frequently Asked Questions (FAQs)