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 cheque /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 –
- Payment is made under any lease, sub-lease tenancy, or any other agreement or arrangement.
- Payment is made either for use of land or building (including factory building) (together or separately) with or without furniture, fittings & land appurtenant thereto.
- Immaterial whether land or part of such building is owned by the person to whom rent is paid.
Following points require consideration :
- If building is let out with furniture & fittings & rent is payable under two separate agreements, composite rent is subject to tax.
- If a non-refundable deposit is made by tenant, then TDS is applicable.
- If refundable deposit is paid no TDS to be done, but if deposit carries interest TDS on interest will be governed by Sec. 194A.
- If municipal taxes, ground rent etc. are borne by tenant no TDS on such sum.
- 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.
- No TDS, if payee is Government or local authorities referred to in section 10(20).
- 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.
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