Section 194I of the Income Tax Act

 

Section 194I of the Income Tax Act deals with TDS (Tax Deducted at Source) on rental payments. Here's a breakdown of the key points:

Applicability:

  • Section 194I applies to any person (other than an individual or Hindu Undivided Family) who is responsible for paying rent to a resident.
  • It also applies to individuals or Hindu Undivided Families who are subject to tax audit under Section 44AB in the preceding financial year.

Types of Payments Covered:

  • Rent payments for land, building, furniture, fittings, or plant and machinery are covered under Section 194I.

TDS Rate:

  • If the annual rent exceeds ₹2,40,000, TDS is applicable.
  • The TDS rate for rent payments under Section 194I is 10%.
  • However, if the payee does not provide their PAN (Permanent Account Number), the TDS rate increases to 20%.

Threshold Limit:

  • If the total rent paid or credited during the financial year doesn't exceed ₹2,40,000, TDS is not applicable.
  • For example, if the annual rent is ₹2,00,000, TDS won't be deducted. But if it exceeds ₹2,40,000, TDS will be applicable on the entire amount, not just the excess over ₹2,40,000.

Time of Deduction:

  • TDS should be deducted at the time of credit of rent to the account of the payee or at the time of payment, whichever is earlier.
  • If the rent is paid in advance, TDS should be deducted at the time of payment or credit, whichever is earlier.

Filing of TDS Returns:

  • The deductor is required to file TDS returns quarterly using Form 26QC.

Exemptions:

  • TDS is not applicable if the total rent paid or credited during the financial year doesn't exceed ₹2,40,000.

Example: Suppose a company pays a monthly rent of ₹25,000 for office space to a landlord. In a financial year, the total rent paid amounts to ₹3,00,000.

  • Since the annual rent exceeds ₹2,40,000, TDS is applicable.
  • TDS will be deducted at the rate of 10% on the entire amount of ₹3,00,000.
  • So, the company will deduct ₹30,000 as TDS and pay ₹2,70,000 to the landlord.

Understanding Section 194I is essential for both tenants and landlords to ensure compliance with tax regulations and avoid penalties.


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