On House Rent Income, How to Deduct TDS u/s. 191 I of Income Tax Act.

Any person (not being an individual / HUF whose accounts are not auditable u/s 44AB, clause (a) or (b), responsible for paying rent has to deduct tax at source @20%. However where payment is to an individual or HUF, TDS is to be made @ 15%. TDS is to be done at the time of credit of such income into payee’s a/c or at the time of payment in cash or by chq /draft or any other mode, whichever is earlier.Credit in payers books to a account called suspense a/c or by any other name shall be deemed to be credited to payees’ a/c.

However in case where the rent paid/credited does not exceed Rs.1,20,000/- during the year, no tax is deductible .W.e.f. 1.4.07 the rate of TDS shall be -

• 10% where any machinery plant or equipment is let out
• 15% in case of let out of building or land appurtenant thereto(including factory building) where the payee is an individual or HUF.
• The rate will be 20% in
• above in case the payee is not an individual or HUF.

Essential features of rent are that –

1. Payment is made under any lease, sub-lease tenancy, or any other agreement or arrangement.
2. Payment is made either for use of land or building (including factory building) (together or separately) with or without furniture, fittings & land appurtenant thereto.
3. Immaterial whether land or part of such building is owned by the person to whom rent is paid.

Following points require consideration :

1. If building is let out with furniture & fittings & rent is payable under two separate agreements, composite rent is subject to tax.
2. If a non-refundable deposit is made by tenant, then TDS is applicable.
3. If refundable deposit is paid no TDS to be done, but if deposit carries interest TDS on interest will be governed by Sec. 194A.
4. If municipal taxes, ground rent etc. are borne by tenant no TDS on such sum.
5. Hotel accommodation taken on regular basis by any person other than Individual/HUF will be in the nature of rent and TDS is to be done.
6. No TDS, if payee is Government or local authorities referred to in section 10(20).
7. Payee can make application to the Assessing Officer in Form 13 for a certificate for deduction of tax at lower rate or to deduct no tax.

Deduction of Tax on Service Tax component of rental income vide circular No. 4/2008 of CBDT dt. 28.4.2008 it has been clarified that deduction u/s. 194 I would be required to be made on the amount of rent paid/payable without including the Service Tax. This is so, as Service Tax does not partake the nature of income of the landlord.

Posted in: 26 AS Statement,e-TDS Return Status,Status of TDS/TCS Return