Section-194I: Rent of land and building,furniture or plant and machinery

Section 194-I outlines the rules for deducting tax at source (TDS) on rent. This applies to those earning income from rent or subletting. The TDS applies as rent is additional income for business people, salaried individuals, and others. 

This guide is aimed at individuals paying rent for land, buildings, or various equipment.

Section 194I Overview

• Non-individuals or HUFs paying rent must deduct tax at source.
• The tax deduction threshold for rent is Rs 2,40,000 for FY 2022-23 (previously Rs. 1,80,000 until FY 2018-19).
• Individuals and HUFs subject to tax audit must also deduct tax at source.
• Tax on rent must be deducted at the time of rent payment or credit to the payee's account, whichever comes first.

Why was TDS u/s 194I Introduced?

The Finance Act of 1994 included Section 194I for tax deductions on rent payments. This was implemented to tax rental income at the source, a practice also seen in other countries.

TDS on Rent Conditions

• No surcharge on TDS on rent unless it involves a foreign company and payment exceeds Rs.1 crore.
• The landlord's PAN number is required for TDS deduction. Without it, TDS on rent is deducted at 20% under Section 206AA.
• TDS on rent does not include any Education Cess or Secondary and Higher Education Cess.

Definition of ‘Rent’ as per Section 194I

• 'Rent' refers to any payment, for use of items like: 
• Land
• Building (or factory building)
• Land associated with a building (or factory building)
• Machinery
• Plant
• Equipment
• Furniture
• Fittings
• This applies whether or not the payee owns the items. Sub-letting is included.
• No tax deduction is required for security or advance payments collected by a landlord, as these are not deemed income and will be refunded.
• However 

TDS Rate

Covered Payments under Section 194I

• Rent from Factory Building 

If a factory building is rented out, the rent is usually a business income for the lessor or owner. This is subject to tax deduction at source (TDS).

• Inclusive of Service Charges 

Service charges from business centres are included as rent.

• TDS for Separate Building and Furniture Rentals 

If a building and furniture are rented by different people, tax needs to be deducted from the building rent only under Sec. 194I.

• TDS on Non-Monthly Rent Payments 

Under Sec. 194I, TDS is not required to be deducted monthly. It can be done quarterly or yearly based on the payment schedule.

• Cold Storage Facility Charges 

Payments for cold storage facilities are considered as charges for plant use, not building use.

• Association Hall Rent 

Associations have tax deduction obligations if the hall rent exceeds Rs 2,40,000.

• Hotel Payments for Seminars 

If hotels charge only for catering/meals and not for use of premises, only Sec.194C applies for the catering part.