TDS on rent for payment paid in advance for 3 yrs

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 October 2010 I have taken on lease 10 acres (kile) for 3 years from a farmer. use will not be agriculture. Lease rent would be 2.25lakh per acre for 3 years (not per year). I have to pay complete rent (22.5 lakh) in advance to him. What would be TDS treatment to this payment.

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

30 October 2010 You have to deduct TDS on the entire 22.5 lakhs now itself.

Problems faced by assessees in getting due credit for tax deducted at source -

a) Tax is deducted at source under the provisions of section 194-I of the Act on advance rent pertaining to more than one financial year to be adjusted against future rent.

In the situation mentioned at (a) in para above, difficulty in getting due credit for tax deducted arises because the entire amount of advance rent does not accrue to the assessees as income in one financial year since the income from the property is taxed on the basis of annual letting value whereas the tax is deducted at source on the entire amount of advance rent pertaining to more than one financial year. Therefore, credit for entire amount of tax deducted at source is not allowed in terms of section 199 of the Act because the credit is to be given for the assessment year for which such income is assessable. Thus, the assessees do not get credit for the entire amount of tax deducted at source in the first assessment year, in which part of the advance rent is offered as rental income, on the basis of the certificate furnished under section 203 of the Act. Further there is a difficulty in claiming the credit in the remaining assessment years to which balance of advance rent relates in the absence of the certificate for tax deducted at source for these years.

The matter has been considered by the Board and it has been decided that credit for tax deducted at source shall be allowed to the assessees on whose behalf such tax has been deducted and to whom certificate for tax deducted at source has been furnished under section 203 as under :

(i) In such cases as referred to in (a) above where advance rent is spread over more than one financial year and tax is deducted thereon, credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years based on the single certificate furnished for tax so deducted on the entire advance rent.

Circular : No. 5/2001, dated 2-3-2001.

Querist : Anonymous

Querist : Anonymous (Querist)

31 October 2010 thanks Sir,
One more condition is there. that i have to dig that land upto 3feet and I will use that soil in my business. that has to be completed in 3 years. land will be in my possession for 3 years. I can use that land for agriculture purpose. Can i say that I have purchased the soil and the amount paid is not rent so no TDS?

Upgrade to CAclubindia Pro. Subscribe Now!

Aditya Maheshwari

Aditya Maheshwari (Expert)
Follow

01 November 2010 No. If lease agreement is more than 12 years then only u can be said to be the owner of land not otherwise.