What is Section 194I, 194IB & 194IC under Income Tax Act?


(Last Updated On: February 1, 2019)
Budget 2019: Interim Budget 2019 announced way ahead Lok Sabha election, has increased the threshold for deduction u/s 194I – TDS on Rent to Rs 240000 increasing it by Rs 60000. The earlier limit was Rs 180000 which will be applicable till FY 2018-19.
This part of our TDS series majorly focuses on the tax deduction provisions which are relating to payment of rent. The section that will be discussed are Section 194I, 194IB & 194IC that are as follows-

Section 194I: TDS on Rent

 

Whenever we hear the word ‘rent’, the first thing which comes to mind is the payment which knocks on the door at the end (or beginning) of every month. It can be in any form like house rent, machine rent, building rent, office rent, and the list is endless. Hence it does not come as the surprise that Section 194I, i.e. TDS on Rent impacts millions of people across India. Let’s know about this section more in detail.
  • Who has the need to deduct TDS u/s 194I?

Any person (who is not an Individual/HUF) pays to another resident an income by way of rent is required to deduct TDS u/s 194I. But if the Individual/HUF becomes liable to audit u/s 44AB (a) and (b) then he/she is required to deduct TDS under this section.
  • What is Rent?

Rent means any payment made under lease or sub-lease or tenancy or any agreement for use of the following:
    • Land
    • Building (including factory building)
    • Machinery
    • Plant
    • Equipment
    • Furniture
  • Fittings
  • What is the rate & time of tax deduction u/s 194I?

The rate of tax under this section is as follows:
    • 2% for the use of any machine or plant or equipment.
  • 10% for the use of any land or building (including factory building) or both or furniture or fittings.
And the time of deducting tax is earlier of, the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft or other modes).
  • No TDS Requirement
  • Where the amount paid as rent (at once or total in a financial year) to a payee (i.e. receiver) does not exceed ₹180000. From the Financial Year 2019-20, this limit has been increased to ₹240000.
  • Where the rent is given to a business trust (such trust owns the asset) which is a real estate investment trust as referred u/s 10(23FCA).
  • Some Special Considerations

  • Amount paid as warehousing charge is liable to TDS u/s 194I
  • The amount given as security deposit to the owner of an asset is not liable to TDS u/s 194I if such amount is refundable in nature. But when that amount of ‘deposit’ is adjusted against rent then it becomes liable to TDS u/s 194I.
  • Payment made for renting a business center is liable to TDS under this section.
  • When an accommodation in the hotel is taken on a regular basis (i.e. under an agreement) then such payment attracts TDS under this section.
But, if such payment is made by an employee or individual (who represents the company) and is later gets reimbursed then no TDS will be leviable. However, if such individual is liable to audit u/s 44AB then TDS will be levied.

Section 194IB: TDS on Payment of Rent by Certain Individuals or HUF

We saw that how section 194I makes only those Individual/HUF liable to TDS who are required to get accounts audited u/s 44AB. Hence, to widen the coverage and bring in ambit those individuals or HUF who pay big amount of rent but are still not liable to audit, Section 194IB was introduced in Budget 2017.
  • Who has the need to deduct TDS u/s 194IB?

Any person (who is an Individual/ HUF but not liable to audit u/s 44AB) pays income by way of rent to a resident is required to deduct TDS under this section.
  • What is the rate & time of tax deduction u/s 194IB?

The rate of the tax deduction is 5% and if the PAN of the recipient is not available then the rate will be 20%. But the amount of TDS cannot exceed the amount of rent paid for the last month. Time of tax deduction is, earlier of:
    • The time of credit of rent (for the last month in the previous year or the last month of the tenancy if the property is vacated before during the year), or
  • The time of payment (via cash or cheque or draft or any other mode).
  • No TDS Requirement

  • Where the amount paid by way of rent does not exceed ₹50000 per month (or part of it), then TDS is not required to be made.
  • Also, if TDS is deducted under this section then there is no requirement of TAN.

Section 194IC: TDS on Payment Made Under Specified Agreement

This provision has been inserted recently from Budget 2017 and the objective was to bring under scope ‘Joint Development Agreements’. So let’s understand this section in detail:
  • Who has the to deduct TDS u/s 194IC?

Any person who pays to a resident some consideration (not in kind) under a Joint Development Agreement, has to deduct TDS u/s 194IC.
  • What is Joint Development Agreement?

This is an agreement between the owner of an asset (being land or building or both) who agrees to allows another person to build a real estate project on such asset, in return for share and/or payment in cash.
  • What is the rate & time of tax deduction u/s 194IC?

The rate of the tax deduction is 10% and if the PAN of the receiver is not available then the rate is 20%. Time of deducting tax is earlier of, the credit of income to the account of the payee (receiver) or actual payment (in cash, cheque, draft or other modes). Also, there is no threshold limit (exemption limit) under this section.

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Team Tax2Win