1. What are the key regulations governing the deduction of tax at source on rent payments?
The deduction of tax from rent payments is mandated by specific sections of the Income-tax Act, namely section 194-I and section 194-IB.
2. What constitutes “rent” under these sections?
- For section 194-I, rent encompasses any sum paid for the use of land, building, plant, machinery, equipment, furniture, or fittings under lease, sub-lease, tenancy, or any other arrangement.
- In the context of section 194-IB, rent refers to any sum paid or payable for the use of land or buildings or both under any lease, sub-lease, tenancy, or similar arrangement.
3. Who is responsible for deducting tax at source (TDS) on rental payments under section 194-I?
Any person, excluding specified individuals or Hindu Undivided Families (HUFs), who is responsible for paying rent, is required to deduct tax under section 194-I. However, individuals or HUFs engaged in business or professions with turnovers exceeding Rs. 1 crore or Rs. 50 lakhs, respectively, are also included.
4. When is tax deduction required under section 194-I?
Tax is required to be deducted under section 194-I only if the rent is payable to a resident of India. The deduction should occur at the time of crediting the rent or making the payment, whichever comes earlier.
5. What is the threshold limit for tax deduction under section 194-I?
Tax shall be deducted by the payer if the amount paid or payable exceeds Rs. 2,40,000 during the financial year. However, in the case of joint owners of a property, the threshold limit applies individually if their share is definite and ascertainable.
6. What are the tax rates under section 194-I?
The rate of tax deduction at source (TDS) is 2% for rent paid for the use of plant, machinery, or equipment. For rent paid for the use of land, building, furniture, or fittings, the rate is 10%. These rates are not enhanced by surcharge or health and education cess.
7. What happens if the payee does not furnish PAN under section 194-I?
If the payee does not provide PAN, tax shall be deducted at a rate higher of the prescribed rate in the relevant provisions of the Act, the rate or rates in force, or 20%.
8. What is the rate of TDS under section 194-I if the payee is a non-filer of income-tax return?
According to section 206AB, if the payee has not furnished its return of income, tax is required to be deducted at a rate higher of twice the rate prescribed in the relevant provisions of the Act, twice the rates in force, or 5%.
9. What is the rate of TDS under section 194-I if the payee is a non-filer and does not furnish PAN?
In this scenario, the tax shall be deducted at the rates specified under section 206AA or section 206AB, whichever is higher.
10. How is tax deducted under section 194-I if the building is let out along with machinery or other equipment?
In cases where other assets like machinery are let out along with land or building, rental proceeds are considered composite rent. The tax deduction depends on whether there is a separate agreement for land/building and other assets or not.
- If there is a separate agreement, tax is deducted at 10% from the rent of land/building and 2% from the rental payment of machinery, plant, or equipment.
- If there is no separate agreement, tax is deducted at 10% or 2% depending on the substantial element of the rent agreement. If machinery, plant, or equipment’s renting is incidental to land/building renting, tax is deducted at 10%.
11. Can the payee claim for nil/lower deduction of tax under section 194-I?
Yes, if the estimated tax liability justifies nil deduction, the assessee can file a declaration to the deductor for nil deduction under Section 197A. Additionally, the option exists to apply before the assessing officer for a nil or lower deduction certificate under Section 197.
12. What is the time limit to deposit the tax amount deducted under section 194-I?
Tax deducted under section 194-I is required to be deposited to the credit of the Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted. However, for the tax deducted in March, the deposit deadline is April 30 of the next financial year.
If the deductor is a government office and tax is required to be deposited without submitting an Income-tax Challan, the government department shall deposit the tax on the same day it was deducted.
13. Is there any requirement to furnish a TDS Statement for tax deducted under section 194-I?
Yes, the person responsible for TDS under section 194-I is required to file a statement of tax deducted at source in Form 26Q on a quarterly basis.
14. Whether the deductor is required to issue TDS Certificates to the deductee?
Yes, the deductor is required to issue a TDS certificate to the deductee in Form No. 16A within 15 days from the due date of furnishing the TDS Statement.
15. Who is required to deduct tax on rent under section 194-IB?
Any individual or HUF not covered under section 194-I is required to deduct tax at source under section 194-IB on rental payments.
16. When is it required to deduct tax at source under section 194-IB?
Section 194-IB provides specific timelines for tax deduction:
- Where the property is let out for the whole year, tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of the financial year or the termination of tenancy, whichever happens earlier.
- Where the property is vacated during the year, tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of tenancy, whichever happens earlier.
17. What is the threshold limit prescribed for rent for section 194-IB?
The tax shall be deducted under this section if the rent for a month or part of the month exceeds Rs. 50,000 during the financial year.
18. What is the rate at which tax is required to be deducted under section 194-IB?
The tax shall be required to be deducted under section 194-IB at the rate of 5%. Further, the rate will not be enhanced by a surcharge or health and education cess. However, tax deducted under this section shall not exceed the amount of rent paid for the last month of the financial year or the termination of tenancy, as the case may be.
19. What will be the rate of TDS under section 194-IB if the payee does not furnish PAN?
As per section 206AA, if the payee does not furnish PAN, tax shall be deducted at a rate higher of the following:
- The rate prescribed in the relevant provisions of the act, or
- The rate or rates in force, or
- 20%
However, deduction at a higher rate will prevail subject to the condition that the amount of TDS cannot exceed the amount of rent for the last month of the financial year or the termination of tenancy, as the case may be.
20. What will be the rate of TDS under section 194-IB if the payee is a non-filer of income-tax return?
Section 206AB provides for the deduction of tax at a higher rate if the deductee has not furnished the return of income for a specified period. However, the provisions of Section 206AB are not applicable if tax is required to be deducted under section 194-IB.
21. Whether the assessee is required to obtain Tax Deduction or Collection Number (TAN) in case tax is to be deducted under section 194-IB?
There is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN.
22. What is the time limit to deposit the tax amount deducted under section 194-IB?
Where tax is deducted under section 194-IB, it is required to be deposited through a challan-cum-statement in Form No. 26QC within 30 days from the last day of the month in which such tax is deducted. No further statement or form is required to be furnished. In case more than one seller, Form 26AS shall be filled up more than according to the number of sellers. TDS certificates shall be issued to all sellers.
23. Whether the deductor is required to issue TDS certificates to the deductee under section 194-IB?
A certificate in Form No. 16C shall be issued by the deductor where tax is deducted under section 194-IB. The form shall be issued within 15 days from the due date of furnishing challan-cum-statement in Form No. 26QC.
