Persons required to deduct Tax – Any person (other than an individual or HUF who is not liable for audit under section 44AB) who is responsible for paying rent to a resident is required to deduct tax under this section.
Individual and HUF who are not covered in this section are required to deduct TDS on rent for more than Rs. 50,000 per month w.e.f 1st June 2017 under section 194IB.
Tax is to be deducted at the time of credit of such rent to 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.
If the amount of rent paid/credited during the financial year does not exceed Rs. 1,80,000, then no TDS is required to be deducted. If the amount of rent paid/credited or likely to be paid during financial year exceeds Rs. 1,80,000 then TDS is to be deducted on whole amount.
TDS is deductible if it is a lease, sub-lease, tenancy or any other arrangement. This section is applicable when rent is received for land, building, plant and machinery, equipments, furniture and fittings whether given separately or together.
Assessee can submit Form 15G/15H, if eligible so NO TDS will be deducted from the amount of rent paid to him. This provision is applicable for TDS on rent from financial year 2016-17.
For the use of any machinery or plant and equipment – 2%
For the use of any land or building or furniture or fittings for all persons – 10%
No surcharge or education cess is levied on payment to resident. If PAN has not been provided by the payee then TDS @20% is to be deducted.
Assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197.
TDS on service tax amount
Service tax paid by the tenant is not a part of the rent. Thus TDS will be deducted from the amount excluding the service tax amount if such tax amount is shown separately. Circular no. 4/2008.
TDS in some conditions
Security Deposits – If deposit is refundable at the time of vacating the premises then TDS is not required to be deducted. If it is non-refundable then TDS is required to be deducted.
If the deposit carries interest, TDS is required to be deducted under section 194A from such interest.
No tax deduction if payee is Government/Local authorities – Tax is not required to be deducted if the rent is to be paid to Government. Also TDS is not required to be deduct if rent is paid to statutory/local authorities if it satisfied conditions of Circular no. 699, 30th Jan,1995.
Warehousing Charges – Warehousing charges are liable for TDS under this section.
Provided also that no deduction shall be made under this section where the income by way of
rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust. (effective from 1st June 2015)
If municipal taxes are borne by the tenant, then such payment is not considered as rent paid to landlord and thus not considered for TDS.
- No surcharge is applicable except where rent is payable to a foreign company and the amount exceeds Rs. 1 crore.
- No Education Cess is to be levied on TDS on rent.
- If the receiver of rent does not furnish his pan to the tenant then TDS is required to be deducted @ 20%.
- If the municipal taxes, ground rent etc are borne by the tenant, no tax would be deducted on such amount.
- If there are co-owners in the rented property then limit of Rs. 1,80,000 will be calculated separately for each co-owner.