Rent means a payment under any lease, sub-lease, tenancy or any other arrangement or agreement for the use of any land or building. However, under the Indian Income-tax laws, a property owner who receives rent is subjected to tax deduction at source or TDS.
According to section 194-1 of the Income Tax Act, TDS is the process in which a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.
As per the existing provisions, in case of TDS on rent paid, it is the duty of the rent payer to deduct tax at the rate of 10% of the rent on any land or building, if the aggregate of the rent paid or likely to be paid exceeds Rs 1.80 lakhs in a year.
So let’s understand the basics of TDS on rent paid and on whom it is applicable along with the prescribed rates:
TDS on rent: On whom it is applicable?
- TDS on rent must be deducted by any person if the total rent paid in a year is over Rs.1,80,000.
- On the other hand, in case of an individual or HUF rent payer, it has been said that if the payer of the rent is engaged in a business or profession with turnover more than the prescribed limit, and if the accounts were required to be audited during the preceding year, then they are also required to deduct TDS on rent.
- TDS on Rent is also applicable in case one has pay money for hotel accommodations on regular basis.
When TDS on Rent is not applicable
Find below are the cases where tax deduction at source is not applicable on rent:
- When the amount of rent credited doesn’t exceed an amount of 1, 80,000 during the financial year.
- Individuals and HUF can normally avoid deduction, except in cases where the individual or HUF is engaged in a business or profession or is liable for tax audit.
- Any other taxes payable to the Government cuts TDS on Rent.
- In case of hotel accommodations, if an organization or tour operators enter into an agreement with a hotel or a group of hotels for the purpose of accommodation of employees, guests etc., on an agreed rate, it wouldn’t come under the purview of TDS.
TDS Rates for Rent
- Rent of land, building and furniture for individuals and Hindu Undivided Family- 10%.
- Rent of land, building or furniture in case of others- 10%.
- TDS rates on rented Plant, machinery or equipment- 2%.
TDS on rent paid: Expanded scope
In the above sections, we have told you about the existing provisions on TDS on Rent. However, the central government has now expanded the scope of the tax deduction at source on rent paid in order to bring more people under the tax net.
According to the new provisions, this will cover all individuals and HUF, which are not covered till now. From now onwards, each individual and HUF will have to deduct tax at source on rent being paid, at the rate of 5% in case the amount of rent for each month or part of the month is more than Rs 50,000.
So, with the new provisions, those people who are earning rent by letting out the property to people who are not engaged in any business or profession and saving their TDS will also come into the tax slab.