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Tds on rent

RAGHAV (FRESHER) (35 Points)

26 January 2014

Hello All,

1) According to agreement Amount is 23000/month, but for that property have two owners split into 11000 and 12000 every month.Is TDS is applicable for this?

2) According to Agreement Amount is 28000/month, but two tenants are staying together. Sharing 14000 each. in this case TDS is Applicable?

Much Appreciated for your help.

Thanks
Raghav

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13 Replies

SamTK (Chartered Accountant) (194 Points)
Replied 26 January 2014

If the rent payment is being made to two separate owners of the property, and each of them have a definite and ascertainable ownership to the property, the payment being made to each of the co-owner should exceed Rs. 1,80,000 to attract the provisions of Section 194-I

This has been specifically published in Circular No. 75 / 08.08.1995. This has also been highlighted in Senior Manager, SBI (2012) 206 Taxman 607 (All.)

Therefore, in your case above, if it can be proved that the two owners, do in fact, have separable identity and individual and segregated ownership in the collective property, no TDS needs to be deducted.

In the second case, any property owner receiving rent exceeding Rs. 1,80,000 per annum is liable to have TDS deducted under section 194-I. Section 194-I works assessee-wise and not asset-wise. Therefore, in the second case, the deductee-assessee is receiving a rent exceeding 1,80,000 Rs/-, and therefore is liable for tax deduction at source. If the tenants are covered u/s 44AB, they would be required to deduct TDS under section 194-I. In any other case, no TDS is liable to be deducted.

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Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 26 January 2014

in the first case samTK is right but in second case TDS would not be applicbale in the case becasue we look limit of Rs. 180000/- tenant wise and in second case each tenant pays rent Rs. 14000/- pm means they are paying rent Rs. 168000/- pa and TDS provison is not applicable to both the tenents even they cover u/s 44AB

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SamTK (Chartered Accountant) (194 Points)
Replied 26 January 2014

Raghav,

My contention as to the second case stands withdrawn. Sudesh is right.

After reading through Section 194-I again, I've come to an understanding that the liability to deduct TDS is tenant & assessee-wise.

Therefore, if each tenant does not pay a rent exceeding 1,80,000 Rs/- to the assessee, such tenant will not be liable to deduct any tax at source before paying the rent.

Its also assessee-wise. So if the same tenant is paying rent on any other premises owned by the same deductee, and together with such rent, the payment exceeds 1,80,000Rs/-, the tenant would be liable to deduct TDS.

Thank you Sudesh for correcting my misconception.

Cheers,
Sam

Stranger (.) (5531 Points)
Replied 27 January 2014

Originally posted by : SamTK
	Raghav, My contention as to the second case stands withdrawn. Sudesh is right. After reading through Section 194-I again, I've come to an understanding that the liability to deduct TDS is tenant & assessee-wise. Therefore, if each tenant does not pay a rent exceeding 1,80,000 Rs/- to the assessee, such tenant will not be liable to deduct any tax at source before paying the rent. Its also assessee-wise. So if the same tenant is paying rent on any other premises owned by the same deductee, and together with such rent, the payment exceeds 1,80,000Rs/-, the tenant would be liable to deduct TDS. Thank you Sudesh for correcting my misconception. Cheers, Sam

Agreed..

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Nidhiii (Audit) (642 Points)
Replied 27 January 2014

One small doubt sir..what will happen if one of the tenants makes the full payment of 28k with one cheque and later 14k is reimbursed by the other person ? Will tax be deductible at source now ? How relevant is the mode of payment vis a vis 194 I? Thanks in advance.

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SamTK (Chartered Accountant) (194 Points)
Replied 27 January 2014

I believe the provisions under the laws of Tax Deducted At Source are drafted with the Deductor-Deductee status kept in mind, at broad. Also, the words "payer" and "payee" are to be interpreted as "deductor" and "deductee".

Therefore, the person making the payment is irrelevant. However, the books of account, if any, should be maintained such that the distinction could be made easily. A compound entry depicting the liability paid for the the tenant should suffice.

Therfore, even if a single tenant is paying the whole of the sum, the liability upon him to deduct TDS would only devolve, if he is responsible to pay a rent exceeding Rs.1,80,000/-

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CA RAJESH B. PATANGE (Practicing Chartered Accountant) (31 Points)
Replied 27 January 2014

Sir, if tenants are 8 branches of a bank and each tenant branch pays a rent of Rs. 12k/pm to a single owner, does each branch has to pay rent after deducting tds?

CA RAJESH B. PATANGE (Practicing Chartered Accountant) (31 Points)
Replied 27 January 2014

Sir, if tenants are 8 branches of a bank and each tenant branch pays a rent of Rs. 12k/pm to a single owner, does each branch has to pay rent after deducting tds?

CA RAJESH B. PATANGE (Practicing Chartered Accountant) (31 Points)
Replied 27 January 2014

Sir, if tenants are 8 branches of a bank and each tenant branch pays a rent of Rs. 12k/pm to a single owner, does each branch has to pay rent after deducting tds?

SamTK (Chartered Accountant) (194 Points)
Replied 27 January 2014

Rajesh,

Generally, each bank branch is viewed as a separate entity, since it would be inconvenient and against commercial prudence for individual bank branches to collectively prepare computation sheets for the deduction of such TDS. In fact, bank branches are spread throughout the country, and it would seem that the legislature's intent would not be to burden these branches with trivial issues.

However, a question worth asking is, are the branches paying for the rent themselves, or is the regional office/zonal division/headquarters taking care of the payment of such rent? If the latter is remiting the rent, I would think it would be responsible for the deduction of TDS under section 194-I. If the branches are responsible individually, I believe the deduction of TDS would not be required under law.

Also, it can't be mere coincidence that the 8 branches of the Bank have rented the same owner's premises. It seems like the two parties have entered into a conscious agreement. If such is the case, I think each individual branch should deduct TDS at source.

I haven't come across any such case law yet. However, I do think if the payment is being made by the HO, or if the rental agreement is simultaneously struck for all the 8 branches, TDS should be deducted.

Cheers,
Sam

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Nidhiii (Audit) (642 Points)
Replied 28 January 2014

Originally posted by : SamTK
	I believe the provisions under the laws of Tax Deducted At Source are drafted with the Deductor-Deductee status kept in mind, at broad. Also, the words "payer" and "payee" are to be interpreted as "deductor" and "deductee". Therefore, the person making the payment is irrelevant. However, the books of account, if any, should be maintained such that the distinction could be made easily. A compound entry depicting the liability paid for the the tenant should suffice. Therfore, even if a single tenant is paying the whole of the sum, the liability upon him to deduct TDS would only devolve, if he is responsible to pay a rent exceeding Rs.1,80,000/-

Thank you so much for your explanation sam!! I hope we get some more expert opinions on this.

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 28 January 2014

Dear Rajesh

TDS u/s 194 I will be applicable because one tenant is paying rent to a single owner INR 96000/- pm. Here it is immaterial that a single tenant is paying 12k for each of 8 branchs.