TDS on Rent -Section 194I
Conditions to be satisfied for applicability of TDS on Rent [section 194-I ]
For applicability of TDS on Rent -section 194-I, following conditions need be fulfilled :
♦ The payer must be a person specified in [para 1.7]
♦ The payment must be in the nature of ‘income by way of rent’. [ para 1.6]
♦ The payee(recipient) is a resident. [ para 1.8]
♦ The quantum of payment during the financial year exceeds the monetary limits mentioned in para 1.2
Table of Contents –TDS on Rent u/s 194I
Scope and effect of section 194-I
Monetary limit on rent for deduction of TDS on Rent
Rate of TDS on Rent
TDS on Rent in case of Earlier Payments made
TDS on Rent in case of more than one payee
Meaning of Rent for deduction of TDS
Persons (Payers ) responsible deduction of tax at source on Rent u/s 194I
Payees/recipient covered by section 194-I (TDS on Rent)
Who is to deduct TDS on Rent
When payment is made to Government, etc.
When tax to be deducted at source on Rent
When no tax need be deducted on rent or tax be deducted at lower rate on rent
When no tax need to be deducted or tax may be deducted at lower rate u/s 197A
Special provisions for certain entities
Effect of non-furnishing of PAN on rate of TDS on Rent
TDS on Rent : CBDT Circulars
Deposit of TDS on Rent to the credit of the Central Government
Furnishing of statement for TDS on Rent
Issue of Certificates for TDS on Rent
Annual statements to payees/Recipient by Income Tax department
Claim for refund
Consequences for non-deduction/short deduction of TDS on Rent
Disallowance under section 40(a)
Information to be furnished by payer in case of payment to non-resident
CBDT Clarifications on TDS on Rent
1.1 Scope and effect of section 194-I ( TDS on Rent )
Section 194-I, as inserted by the Finance Act, 1994, with effect from 1-6-1994, provides for deduction of tax at source from payments in the nature of ‘income by way of rent’. With effect from 1-6-2003, this section applies only to payments to residents. Where payment is made to non-residents, tax will be deducted at source under section 195, if found necessary.
1.2 Monetary limit on rent for deduction of TDS on Rent
Tax need not be deducted at source in respect of all rent payments. Under the proviso to section 194-I, no deduction of tax at source need be made where the amount of such income or the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the ‘payer’ to the account of, or to, the ‘payee’ does not exceed
- Rs. 1,20,000 upto the end of financial year 2009-10, or
- does not exceed Rs. 1,80,000 during the financial year 2010-11 and succeeding financial years.
Thus, only if the aggregate payment for the financial year, which is paid or likely to be paid, by the ‘payer’ to the ‘payee’ exceeds the above monetary limit, tax has to be deducted at source by the ‘payer’.
1.3 Rate of TDS on Rent
The rate at which tax is to be deducted at source is as follows :
|♦||Payments for use of any machinery or plant or equipment||2%|
|♦||Payments for the use for any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings||10%|
1.4 TDS on Rent in case of Earlier Payments made
In case where, at the time when the credit/payment is made, it is expected that the total payment during the financial year would not exceed the monetary limit but later on it is found that the credit/payment exceeds that amount, then, deduction should be made in respect of earlier payments as well, since the liability to deduct tax is attached to the aggregate payments made during the financial year.
1.5 TDS on Rent in case of more than one payee
If there are a number of payees, each having definite and ascertainable share in the property, the above monetary limit, will apply to each of the payee/co-owner separately. The payees and payers are however advised not to enter into sham agreements to avoid TDS provisions – Circular No. 715, dated 8-8-1995.
Building was owned by various co-owners and each co-owner was having definite and ascertainable share in property. Co-owners executed a registered lease deed in respect of said building in favour of assessee-bank. Since share of each owner was definite, bank paid rent to all co-owners by separate cheques. Since rent paid to each co-owner was less than Rs. 1,80,000, bank need not deduct tax at source on rent paid.
1.6 Meaning of Rent for deduction of TDS
For deducting TDS on rent , the ‘income’ must be ‘by way of rent’. For this purpose, the term ‘rent’ has been given a specific definition in Explanation (i) to section 194-I.
Prior to 13-7-2006 Explanation (i) to section 194-I read as follows :
“‘rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee.”
With effect from 13-7-2006, this Explanation has been substituted, so as to read as follows :
“‘rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—
|(b)||building (including factory building); or|
|(c)||land appurtenant to a building (including factory building); or|
whether or not any or all of the above are owned by the payee.”
1.7 Persons (Payers ) responsible deduction of tax at source on Rent u/s 194I
The following persons are responsible for deduction of tax at source, if they pay or credit any income by way of rent in excess of the monetary limit (specified in para 1.2 above ) during the financial year :
- Any person other than an individual or HUF.
- From 1-6-2002, any individual or HUF who satisfies any of the following conditions is also liable to deduct tax at source:
(i) If his/its total sales, turnover or gross receipts from business exceed or exceeds specified monetary limits during the financial year immediately preceding the financial year in which income is credited or paid. The specified monetary limits are as follows
|Financial year(s)||Monetary limit (Rs.)|
|Up to 2009-10||40 lakhs|
|2010-11 and 2011-12||60 lakhs|
|2012-13 and subsequent financial years||1 crore|
ii) If his/its gross receipts from profession exceeds specified monetary limits during the financial year immediately prece-ding the financial year in which income is credited or paid. The specified monetary limits are as follows:
|Financial year(s)||Monetary limit (Rs.)|
|Up to 2009-10||10 lakhs|
|2010-11 and 2011-12||15 lakhs|
|2012-13 to 2015-16||25 lakhs|
|2016-17 and subsequent financial years||50 lakhs|
Since the figures for the ‘preceding financial year’ are the determinative factor, an individual or HUF shall be liable to deduct tax at source during the financial year 2016-17, only if such individual or HUF has carried on some business or profession during the financial year 2015-16 and the sales/turnover/gross receipts for that year exceed Rs. 1 core (in case an Individual or HUF was carring on Business) or Rs. 25 lakhs (in case an Individual or HUF was carring on Profession).
1.8 Payees/recipient covered by section 194-I (TDS on Rent)
Any resident person who is receiving payment in the nature of ‘income by way of rent’ from any person as specified in para 1.7, is covered by section 194-I. Thus, the recipient of income can be even a resident individual or HUF.
1.9 Who is to deduct TDS on Rent
The payer (i.e. the tenant) is to deduct tax at source.
1.10 When payment is made to Government, etc.
Where the recipient of payment is any of the following persons, no tax shall be deducted at source :
|♦||LIC, GIC and its subsidiaries, and any other insurer, in respect of any securities owned by them or in which they have full beneficial interest|
|♦||Corporation established under Central Acts, whose income is exempt from tax|
|♦||Mutual Funds as specified in section 10(23D).|
1.11 When tax to be deducted at source on Rent
The deduction of tax is required to be made on the earliest of the following four events :
♦ Credit to the account of the payee; or
♦ Credit to any other account like ‘rent payable account’, ‘suspense account’, ‘outstanding liabilities account’, etc., in respect of the whole or any part of the amount. Thus, if at the year end, the ‘outstanding liabilities account’ is credited in respect of any such expenditure, TDS is required on such credit although the credit is not made in the account of the payee; or
♦ Payment in cash or by issue of a cheque or a draft;
♦ Constructive payment to the payee by debiting his account and crediting to some other account.
1.12 When no tax need be deducted on rent or tax be deducted at lower rate on rent
The payee has to make an application to the Assessing Officer in the prescribed form well in advance. If the Assessing Officer is satisfied that existing and estimated tax liability of the payee justifies deduction at a lower rate or no deduction of tax, he shall issue an appropriate certificate to that effect.
The payee must apply for certificate before the amount is paid or credited to its account. The CBDT have directed that applications requesting for certificate under section 197(1) should not be acted upon by the Assessing Officers if submitted after credit/payment of the amount subject to tax deduction at source. The Board have further clarified that assessees having genuine hardship in submitting such applications in time may refer to the Board for condonation of delay in terms of section 119(2)(b) – Circular No. 774, dated 17-3-1999.
- The application by the payee must be in Form No. 13.
- No certificate will be issued if the application does not contain the Permanent Account Number (PAN) of the payee.
- In cases where the ‘deductor’ is more than one person according to the application made by the payee, the Assessing Officer is required to issue separate certificate in respect of each ‘deductor’ and send it to the concerned deductor under advice to the applicant-payee.
- The certificate for no deduction of tax shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate.
- The certificate for deduction of tax at lower rate shall be issued to the person who made an application for issue of such certificate, authorizing him to receive income or sum after deduction of tax at lower rate.
- The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period. The certificate shall be valid only with regard to the person responsible for deducting the tax and named therein
1.13 When no tax need to be deducted or tax may be deducted at lower rate u/s 197A [Inserted by the Finance Act, 2016, w.e.f. 1-6-2016.]
- No deduction of TDS on Rent shall be made in the case of a person (not being a company or a firm), if such person furnishes to the person responsible for paying rent , a declaration in writing in duplicate in Form No. 15G to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.
- No deduction of tax shall be made in the case of an individual resident in India, who is of the age of 60 years or more at any time during previous year , if such individual furnishes to the person responsible for paying rent, a declaration in writing in duplicate in Form No. 15H to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.
1.14 Special provisions for certain entities
The persons mentioned below may make an application in Form No. 13 to the Assessing Officer for the grant of a certificate under section 197(1) authorising them to receive incomes of any type without deduction of tax at source.[Rule 28AB of Income Tax Rules]
The following persons are covered in this regard
(a) Persons in receipt of income or deemed income derived from property held under trust wholly for charitable or religious purposes and who claim exemption under section 11 or section 12.
(b) Persons mentioned below who are required to file a return of income under section 139(4C) :
(i) Scientific research association referred to in section 10(21);
(ii) News agency referred to in section 10(22B);
(iii) Association or institution referred to in section 10(23A);
(iv) Institution referred to in section 10(23B);
(v) Fund or trust referred to in section 10(23C)(iv);
(vi) Trust or institution referred to in section 10(23C)(v);
(vii) University or other educational institution referred to in section 10(23C)(iiiad)/(vi);
(viii) Hospital or other medical institution referred to in section 10(23C)(iiiae)/(via);
(ix) Trade Union or association referred to in section 10(24)(a)/(b).
1.15 Effect of non-furnishing of PAN on rate of TDS on Rent
Section 206AA, as inserted with effect from 1-4-2010, provides as under :
♦ Every person whose receipts are subject to deduction of tax at source (i.e., the deductee) shall furnish his PAN to the deductor. It will be compulsory from 1-4-2010.
♦ If such person does not furnish PAN to the deductor, the deductor will deduct tax at source at higher of the following rates—
(a) the rate prescribed in the Act;
(b) at the rate in force, i.e., the rate mentioned in the Finance Act; or
(c) at the rate of 20 per cent.
♦ No certificate under section 197 will be granted by the Assessing Officer unless the application contains the PAN of the applicant.
♦ It is mandatory for quoting of PAN of the deductee by both the deductor and the deductee in all correspondence, bills and vouchers exchanged between them.
♦ Where the PAN provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his PAN to the deductor and above provisions shall apply accordingly.
1.16 TDS on Rent : CBDT Circulars
Lease Premium: –Upfront/Lump Sum lease premium for long term lease not rent u/s 194I, No TDS :[Circular No 35/2016 Dated 13.10.2016]
Payee is the Government. :-There is no requirement to deduct income-tax at source in income by way of rent, if the payee is the Government. In the case of local authorities referred to in section 10(20), there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about its tax exempt status under section 10(20) on the basis of a certificate to that effect given by the local authority – Circular No. 699, dated 30-1-1995.
Non-refundable deposit:– In cases where the tenant makes a non-refundable deposit, tax would have to be deducted at source as such deposit represents the consideration for the use of the land or building, etc., and therefore partakes the nature of ‘rent’. If however the deposit is refundable, no tax would be deductible at source. If the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A – Circular No. 718, dated 22-8-1995.
warehousing charges :- The term ‘rent’ as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, warehousing charges will be subject to deduction of tax under section 194-I – Circular No. 718, dated 22-8-1995.
Municipal taxes etc borne by Tenant :- If the municipal taxes, ground rent etc., are borne by the tenant, no tax will be deductible on such sum – Circular No. 718, dated 22-8-1995.
‘Any land’ and ‘Any building :- The terms ‘any land’ and ‘any building’ would include a part or a portion of such land or building – Circular No. 718, dated 22-8-1995.
Income Exempt:- In the case of Regimental Funds and Non-public Fund established by the Armed Forces, no tax deduction at source is necessary since the income of such Funds are exempt from tax under section 10(23AA) of the Act – Circular No. 735, dated 30-1-1996.
Sharing of proceeds of a film :- The provisions of section 194-I (TDS on Rent) are not attracted to the sharing of the proceeds of a film between a film distributor and a film exhibitor owning a cinema theatre, because
(i) the exhibitor does not let put the cinema hall to the distributor,
(ii) generally the share of the exhibitor is on account of composite services, and
(iii) the distributor does not take cinema building on lease or sub-lease or tenancy or under any agreement of similar nature –Circular No. 736, dated 13-2-1996.
Hotel Accommodation:- Payments made by persons, other than individuals and HUF, for hotel accommodation taken on regular basis will be in the nature of rent, subject to TDS under section 194-I – Circular No. 715, dated 8-8-1995.
Interest-free deposits :-The rent paid need not be enhanced towards notional income in respect of interest-free deposit received by the landlord. If the deposit is adjustable against future rent, the deposit will be in the nature of advance rent, and hence subject to TDS – Circular No. 715, dated 8-8-1995.
Nomenclature in the Agreement :- Where payments are made by a company taking premises on rent under an agreement styled as business centre agreement, the incidence of deduction of tax at source will not depend upon the nomenclature given to the agreement but on the contents of the agreement –Circular No. 715, dated 8-8-1995.
Composite Arrangement :- In the case of composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, tax is deductible at source under section 194-I on the payments made if the composite arrangement is in essence an agreement for taking premises on rent – Circular No. 715, dated 8-8-1995.
Subleting :- If a person has taken a particular space on rent and thereafter sublets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C.—Circular No. 715, dated 8-8-1995.
General Exemption :-The CBDT have granted exemption from tax deduction/collection at source on the receipts of corporations which are established by a Central, State or Provincial Act for the Welfare and economic upliftment of ex-servicemen and whose income qualifies for exemption from income-tax under section 10(26BBB) of the Act, for a period of three years from 1-8-2008. The CBDT have also clarified that this exemption shall not absolve such organisations from their statutory obligations of deducting tax at source on all contractual payments made by them to other parties including sub-contractors etc. – Circular No. 7/2008, dated 1-8-2008
Payments to new pension system trust:No tax is deductible at source on any payment made to any person for, or on behalf of, the New Pension System Trust established on 27-2-2008 under the provisions of the Indian Trusts Act, 1882, on or after 1-4-2009.
Payments to business trust :No deduction shall be made under section 194-I where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in section 10(23FCA), owned directly by such business trust.
Service tax paid by the tenant:– Service tax paid by the tenant does not partake the nature of ‘income’ of the landlord. The landlord only acts as a collecting agency for Government for collection of Service Tax. Therefore TDS under section 194-I would be required to be made on the amount of rent paid/payable without including the service tax.—Circular No. 4/2008, dated 28-4-2008
1.17 Deposit of TDS on Rent to the credit of the Central Government
Due date for Deposit of TDS on Rent to the credit of the Central Government
TDS on Rent by office of Government
In the case of an office of the Government, tax shall be paid to the credit of the Central Government :-
(a) on the same day where the tax is paid without production of an income-tax challan; and
(b) on or before seven days from the end of the month in which the deduction is made, where tax is paid accompanied by an income-tax challan.
TDS on Rent by any person other than office of Government
In the case of deductors other than an office of the Government, tax shall be paid to the credit of the Central Government—
(a) on or before 30th day of April where the income or amount is credited or paid in the month of March; and
(b) in any other case, on or before seven days from the end of the month in which the deduction is made.
How to deposit TDS on Rent
Where tax has been deposited accompanied by an income-tax challan, the amount of tax so deducted or collected shall be deposited to the credit of the Central Government by remitting it within the time specified into any branch of the Reserve Bank of India or of the State Bank of India or of any authorised bank;
However in case of (a) a company; and (b) a person (other than a company) to whom the provisions of section 44AB are applicable, the amount deducted shall be electronically remitted into the Reserve Bank of India or the State Bank of India or any authorised bank accompanied by an electronic income-tax challan.
The amount shall be construed as electronically remitted to the Reserve Bank of India or to the State Bank of India or to any authorised bank, if the amount is remitted by way of—
(a) internet banking facility of the Reserve Bank of India or of the State Bank of India or of any authorised bank; or
(b) debit card.
Following points should also be kept in view :
♦ Date of encashment of cheque will be the date of payment of tax—Circular No. 141, dated 23-7-1974.
♦ While payment by a local cheque or draft can be made at any of the branches of banks authorised for the purpose, the assessees are advised that if they have an account in any branch of an authorised bank they should tender cheques at the said branch of the authorised bank—Circular No. 306, dated 19-6-1981.
♦ The payment of tax deducted at source should be made at the place of the income-tax office where the person responsible for deduction and payment of tax is required to file the periodical statements of tax deducted at source as prescribed under the Income-tax Rules.-Circular No. 306, dated 19-6-1981
Which challan to be used
The tax deducted at source is required to be deposited in Challan Form No. ITNS 281.
Use of computerised challan forms :-Taking into account the cumbersome and time-consuming process involved in filling up hundreds of challans for crediting tax deducted at source by the persons responsible for deducting tax at source on various payments, the Board has permitted all the persons to use computerised challan forms provided such forms are the exact replica of the one in use at present, having same format, colour and may be similar in size—Circular No. 796, dated 10-10-2000.
1.18 Furnishing of statement for TDS on Rent
In respect of tax deducted at source every tax deductor is required to prepare and transmit quarterly statements in Form No. 26Q.
Due date for sending the statement
The statement should be sent on or before the dates mentioned below :
|Sl. No.||Date of ending of quarter of financial year||Due date|
|1.||30th June||31st July of the financial year|
|2.||30th September||31st October of the financial year|
|3.||31st December||31st January of the financial year|
|4.||31st March||31st May of the financial year immediately following the financial year in which the deduction is made.|
Manner of furnishing statements
Following points may be noted :
(i) The statement may be furnished in any of the following manners, namely:—
(a) furnishing the statement in paper form;
(b) furnishing the statement electronically under digital signature in accordance with the procedures, formats and standards specified by the Director General of Income-tax (Systems);
(c) furnishing the statement electronically along with the verification of the statement in Form 27A or verified through an electronic process in accordance with the procedures, formats and standards specified by the Director General of Income-tax (Systems).
(a) the deductor is an office of the Government; or
(b) the deductor is the principal officer of a company; or
(c) the deductor is a person who is required to get his accounts audited under section 44AB in the immediately preceding financial year; or
(d) the number of deductee’s records in a statement for any quarter of the financial year are twenty or more,
the deductor shall furnish the statement in the manner specified in (i)(b) or (i)(c) above.
(iii) Where deductor is a person other than the person referred to in (ii), the statement may, at his option, be delivered or cause to be delivered in the manner specified in (i)(b) or (i)(c) above.
Fee payable for defaults
In respect of statements to be delivered on or after 1-7-2012, section 234E of the Act provides that, where the deductor fails to deliver or cause to be delivered the statement within the due date mentioned, the deductor shall be liable to pay, by way of fee, a sum of Rs. 200 for every day during which the failure continues, subject to a maximum fee equal to the amount of tax deductible. This fee shall be paid by the deductor before the statement is delivered or caused to be delivered.
Penalty for failure to deliver statement or for furnishing incorrect information in statement
In respect of statements to be delivered prior to 1-7-2012, section 272A(2)(k) of the Act provides that if any deductor fails to deliver or cause to be delivered a copy of the statement within the prescribed due date then in force, the deductor is liable to pay, by way of penalty, a sum of Rs. 100 for every day during which the failure continues, subject to a maximum penalty equal to amount of tax deductible. This penalty shall not be imposed if the deductor proves reasonable cause for the failure.
In respect of statements to be delivered or cause to be delivered on or after 1-7-2012, under section 271H a deductor shall be liable to pay penalty, if the deductor, (a) fails to deliver or cause to be delivered the statement within the due date mentioned above or (b) furnishes incorrect information in the statement which is required to be delivered or cause to be delivered. The penalty leviable shall be a sum which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000. However, no penalty shall be levied for the failure referred to in (a) above, if the deductor proves that, after paying tax deducted along with the fee and interest, if any, to the credit of the Central Government, he has delivered or cause to be delivered the statement before the expiry of a period of one year from the prescribed due date for delivering the statement mentioned above. Section 273B provides that no penalty shall be imposed, either for failure to furnish the statement or for furnishing incorrect information in the statement, if the deductor proves reasonable cause for the same.
1.19 Issue of Certificates for TDS on Rent
In respect of tax deducted at source during the financial year, the payer should issue a certificate for tax deducted at source to payee in Form No. 16A after downloading from the traces website https://www.tdscpc.gov.in/. The deductor, issuing the TDS certificate in Form No.16A by downloading from the TIN Website shall authenticate such TDS certificate by either using digital signature or manual signature.
Time within which certificate is to be issued
The certificate shall be furnished quarterly within the time limit specified below :
|Date of ending of quarter of financial year||Due date|
|30th June||15th August of the financial year|
|30th September||15th November of the financial year|
|31st December||15th February of the financial year|
|31st March||15th June of the financial year immediately following the financial year in which deduction is made|
Issue of duplicate certificate
The deductor may issue a duplicate certificate if the deductee has lost the original certificate so issued and makes a request for issuance of a duplicate certificate and such duplicate certificate is certified as duplicate by the deductor.
Penalty for non-issue of certificate
If a deductor fails to issue certificate in Form No. 16A, he shall be liable to pay, by way of penalty, a sum of Rs. 100 for every day during which the failure continues, subject to a maximum of the amount of tax deductible at source for which certificate is required to be issued. No order imposing penalty shall be passed by any income-tax authority unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such authority. However, no penalty shall be imposed if the deductor proves reasonable cause for the failure.
For deduction of tax at source made on or after 1-4-2012 – All deductors (including Government deductors who deposit TDS in the Central Government Account through book entry) shall issue TDS certificate in Form No. 16A generated through TIN Central System and which is downloaded from the TIN Website with a unique TDS certificate number in respect of all sums deducted on or after the 1st day of April, 2012 under any of the provisions of Chapter XVII-B other than section 192.-Circular No. 1/2012, dated 9-4-2012.
1.20 Annual statements to payees/Recipient by Income Tax department
With effect from 1-4-2008, the Director General of Income-tax (Systems) or the person authorised by him (i.e. NSDL) shall deliver to every payee from whose income-tax has been deducted, a statement in Form No. 26AS by the 31st July every year following the financial year during which taxes were deducted.
Recipient of rent can see the TDS details in form 26AS by logging into www.incometaxindiaefiling.gov.in
1.21 Claim for refund
Rule 31A(3A) provides that a claim for refund, for sum paid to the credit of the Central Government under Chapter XVII-B, shall be furnished by the deductor in Form 26B electronically under digital signature in accordance with the procedures, formats and standards prescribed by the Director General of Income-tax (Systems).
1.22 Consequences for non-deduction/short deduction of TDS on Rent
Read Post TDS not Deducted ? -Consequences
1.23 Disallowance under section 40(a)
Section 40(a) provides that in the case of any assessee following amounts shall not be deducted in computing the income chargeable to tax
‘Thirty per cent of any sum payable to a resident, on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139.’
1.24 Information to be furnished by payer in case of payment to non-resident
Read Complete Post Payment to Non resident ?- Statement by Tax Deductor to Income Tax deptt.
1.26 CBDT Clarifications on TDS on Rent
CLARIFICATION REGARDING SCOPE OF SECTION 194-I VIS-A-VIS ROOM RENT PAYMENTS TO HOTELS
CIRCULAR NO. 5/2002, DATED 30-7-2002
1. Circular No. 715, dated 8-8-1995 has been issued by the Central Board of Direct Taxes to clarify various provisions relating to tax deduction at source under various provisions of the Income-tax Act. Question No. 20 of the aforesaid Circular related to applicability of the provisions of section 194-I of the Income-tax Act in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below :—
“. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.” [Emphasis supplied]
In this context, doubts have been raised as to what constitutes “hotel accommodation taken on regular basis” for the purpose.
2. The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.)makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has also been considered. “‘Rent’ means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . .” [Emphasis supplied]. The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.
3. However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate-contract agreements.
CLARIFICATION REGARDING APPLICABILITY OF PROVISIONS OF SECTION 194-I TO PAYMENTS MADE BY THE CUSTOMERS ON ACCOUNT OF COOLING CHARGES TO THE COLD STORAGE OWNERS
CIRCULAR NO. 1/2008, DATED 10-1-2008
Representations have been received from various quarters regarding applicability of the provisions of section 194-I to cooling charges paid by the various customers to the owners of cold storages. It has been represented that the cold storage owners provide a composite service, which involves preservation of essential food items including perishable goods at various temperatures suitable for specific food items for required periods and storage of goods being incidental to the activity of preservation. The cooling of goods is controlled through mechanical process. The customer brings its packages for preservation for a required period and takes away its packages after paying cooling charges. The customer does not hire the building, plant/machinery, etc., in any manner and does not become a tenant of any kind.
2. The matter has been examined. The main function of the cold storage is to preserve perishable goods by means of a mechanical process, and storage of such goods is only incidental in nature. The customer is also not given any right to use any demarcated space/place or the machinery of the cold storage and thus does not become a tenant. Therefore, the provisions of section 194-I is not applicable to the cooling charges paid by the customers of the cold storage.
3. However, since the arrangement between the customers and cold storage owners are basically contractual in nature, the provision of section 194C will be applicable to the amounts paid as cooling charges by the customers of the cold storage. This may be brought to the notice of the Assessing Officers under your charge.
CLARIFICATION ON DEDUCTION OF TAX AT SOURCE (TDS) ON SERVICE TAX COMPONENT ON RENTAL INCOME UNDER SECTION 194-I
CIRCULAR NO. 4/2008, DATED 28-4-2008
[SEE ALSO ANNEX 17.1]
Representations/letters have been received in the Board seeking clarification as to whether TDS provisions under section 194-I of the Income-tax Act will be applicable on the gross rental amount payable (inclusive of service tax) or net rental amount payable (exclusive of service tax).
2. The matter has been examined by the Board. As per the provisions of section 194-I, tax is deductible at source on income by way of rent paid to any resident. Further rent has been defined in section 194-I as,—
‘”rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—
|(b)||building (including factory building); or|
|(c)||land appurtenant to a building (including factory building); or|
whether or not any or all of the above are owned by the payee;’
3. Service tax paid by the tenant does not partake of the nature of “income” of the landlord. The landlord only acts as a collecting agency for the Government for collection of service tax. Therefore, it has been decided that tax deduction at source (TDS) under section 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.
4. These instructions may be brought to the notice of all officers working in your region for strict compliance.
5. These instructions should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.
DEDUCTION OF TAX AT SOURCE – NON-DEDUCTION IN CERTAIN CASES – SIMPLIFICATION OF PROCEDURE FOR FORM NOS. 15G & 15H
NOTIFICATION NO. 4/2015 [F.NO. DGIT(S)/CPC/(TDS)/DCIT/15H/ 2015-16/14425-556], DATED 1-12-2015
Section 197A of the Income-tax Act provides for no deduction in certain case by submitting a declaration using Form 15G/15H as laid down in Rule 29C of the Income-tax Rules. The manner of filing such declaration and the particulars have been laid down in Rule 29C of the Income-tax Rules. The person responsible for paying any income of the nature referred to in sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A (hereinafter called “payer”) shall enable the payee to furnish the declaration in electronic form after due verification through an electronic process. The declarant shall mandatorily quote his/her PAN in the declaration Form 15G/H in accordance with the provisions of section 206AA(2).
A unique identification number shall be allotted to declaration (paper/electronic). The payer shall digitize the paper declaration and upload all declarations (including electronic declaration and digitized declaration) received during a particular quarter at departmental site (www.incometaxindiaefiling.gov.in) on quarterly basis. Further, clause 5 of rule 29C provides that the payer shall also furnish transactions covered under 15G/15H declarations in quarterly TDS statement in accordance with the provisions of clause (vii) of sub-rule (4) of rule 31A irrespective of the fact that no tax has been deducted in the said quarter.
In exercise of the powers delegated by the Central Board of Direct Taxes (Board) under sub-para (7) of para 2 of Notification issued vide S.O. No. 2663(E), dated 29th September 2015, the Principal Director General of Income-tax (Systems) hereby specifies the procedure, formats and standards in this regard as under:
1. Furnishing and verification of the electronic declaration:
Rule 29C enables the payer to receive electronic declaration after due verification through an electronic process. The payer shall be responsible for proper verification of the declarant through an electronic process and shall implement the verification process after due diligence to ensure non-repudiation of the declarant. The payer shall archive log of all electronic activities in the process of furnishing of electronic declaration and the payer shall be responsible to establish the identity and credentials of the declarant in case of any dispute. The declarant shall mandatorily quote his/her PAN in the declaration Form 15G/H in accordance with the provisions of section 206AA(2).
2. Allotment of UIN (Unique Identification Number):
2.1 UIN shall consist of following three fields (a), (b) & (c):
|(a)||Sequence Number (10 alphanumeric for Form 15G/15H) given as follows :|
|10 alphanumeric characters starting with G followed by 9 digits (E.g. G000000001)||10 alphanumeric characters starting with H followed by 9 digits (E.g. H0000000001)|
|(b)||Financial year for which declaration is being furnished|
|(c)||TAN of the payer|
2.2 Paper declaration shall be digitized by the payer and the same shall bear sequence number out of the same “running sequence number (Field ‘a’ of UIN) series”, as used for online submission.
2.3 UIN running sequence number series shall be reset to 1 in case of each TAN of the payer at the start of each F.Y.
3. Furnishing or making available the declaration to the income-tax authority:
3.1 The payer will upload, the 15G and 15H declarations (digitized/electronic) received during a quarter, on quarterly basis, in the given file format on the e-filing site (www.incometaxindiaefiling.gov.in).
3.2 In addition to the above, the payer shall quote “sequence number” (Field ‘a’ of UIN) in quarterly TDS statement against the transaction covered under 15G/H declaration in accordance with the provisions of clause (vii) of sub-rule (4) of rule 31A irrespective of the fact that no tax has been deducted in the said quarter.
4. Reconciliation Mechanism:
4.1 The payer will be responsible for reconciliation of the allotted UINs vis-a-vis reported UINs to the ITD through reporting in quarterly TDS statement as well as through upload of declarations on quarterly basis.
4.2 The payer shall file exceptional report for the following UINs : (a) UINs not reported in TDS statements (b) UINs not uploaded on ITD website. The format of the report will be made available at the departmental website separately.