TDS on Rent: Overview of Section 194I, 194IB and 194IC

Introduction

TDS on rent refers to the deduction of a certain percentage of tax by the tenant before making a rental payment to the landlord. The tenant deducts TDS and deposits it with the government. This ensures that the government receives tax revenue on rental income and prevents tax evasion.

TDS (Tax Deducted at Source) on rent is governed by three key sections under the Indian Income Tax Act: Section 194I, Section 194IB, and Section 194IC. Each section applies to different scenarios and types of taxpayers. Here’s an overview of each:

Section 194I: TDS on Rent for Businesses

Applicability

• Applicable to individuals, HUFs, and other entities (e.g., firms, companies, trusts) required to deduct TDS if they are subject to tax audit under Section 44AB.
• Deduction is required when paying rent to a resident.

Definition of Rent

Includes payments for use of land, building, furniture, fittings, machinery, plant, or equipment.

Threshold

TDS applies if the annual rent payment exceeds Rs.2,40,000.

Rates

• 2% for plant, machinery, or equipment.
• 10% for land, building, furniture, or fittings.

When to Deduct

At the time of credit to the payee’s account or payment, whichever is earlier.

Non-Applicability

Individuals or HUFs not liable for tax audit are not required to deduct TDS under this section.

Section 194IB: TDS on Rent for Individuals and HUFs (Not Under Tax Audit)

Applicability

Applicable to individuals and HUFs not covered under tax audit provisions.
Deduction is required when paying rent to a resident.

Threshold

TDS applies if the monthly rent exceeds Rs.50,000.

Rates

5% on the total rent amount.

When to Deduct

Deduction is to be made in the last month of the financial year or at the time of vacating the property.

Special Provisions

• No requirement to obtain a TAN (Tax Deduction Account Number) for deducting TDS.
• TDS is deposited using Form 26QC.

Section 194IC: TDS on Rent Under Joint Development Agreements

Applicability

Applies to payments (in cash or kind) made under a Joint Development Agreement (JDA) to the owner of land/building by the developer.

Rate

10% on the monetary consideration paid.

When to Deduct

At the time of credit to the account of the payee or at the time of payment, whichever is earlier.

Non-Monetary Consideration

For non-monetary consideration, the owner is liable to pay tax as per capital gains provisions.

Comparison of Applicability Scenarios

Scenario	Applicable Section	Details
Rent of ₹5,00,000 annually paid by a company	Section 194I	TDS @ 10% on Rs.5,00,000 (Land/Building threshold of Rs.2,40,000 crossed).
Residential rent of ₹60,000/month by a salaried person	Section 194IB	TDS @ 5% on total rent deducted in March or at termination.
Landowner receives ₹10,00,000 in a JDA	Section 194IC	Developer deducts TDS @ 10% on Rs.10,00,000. Non-monetary compensation is separately taxable.

What is the mode of TDS payment on rent?

• Tenants are required to deduct and pay TDS to the government once per financial year. This deduction generally required to be submitted once I.e., the last month of the financial year or the last month of the tenancy, whichever is earlier.

• Tenants must use a challan-cum-statement called Form 26QC to make the TDS payment to the government.
• Once the TDS payment done, the tenant must provide Form 16C to the landlord as Form 16C serves as a TDS certificate and provides proof of the tax deposited.
• Tenants do not need to have a Tax Deduction Account Number (TAN) to make the TDS transaction.
• Penalties and interest levied in case of non-deduction or delay in TDS payment
• Penalty interest of 1% per month on the amount of tax should be deducted for delay in deducting taxes
• Penalty interest of 1.5% per month on the amount of tax should be deposited to the government for delay in depositing tax
• If fail to file Form 26QC within 30 days may result in a late fee of Rs 200 per day.
• A penalty of Rs 100 per day may be levied if fails to issue Form 16C within time frame.

FAQs