TDS on Rent.

TDS on Rent.


Section – 194I

Payer : Any person, However an Individual and HUF, whose total sales, gross receipts or turnover from the business or profession carried on by him do not exceed the monetary limit of ₹ 1 crore and ₹ 50 Lakhs, respectively, specified under section 44AB during the immediately preceding financial year is not liable to deduct tax at source.

Payee : Any person resident

Rate : 5%

Limit :Amount> ₹ 1,80,000 p.a. per co-owner (including Advance Rent & Arrears of Rent)

Nature of payment : Rent i.e. Payment under Lease/Sub-Lease/Tenancy or any Agreement or Arrangement for the use (whether separately or together) of any of the following 8 things :

  1. Land
  2. Building (including Factory Building)
  3. Land appurtenant to any building (including Factory Building)
  4. Plant
  5. Machinery
  6. Furniture
  7. Fittings
  8. Equipment’s

Note: It is not necessary that the payee should be the owner of any of the above – mentioned assets.

Rate: Following are the rates:

  1. Rent for land/building/furniture/fitting : 10%
  2. Rent for plant/machinery/equipment’s : 2%

Provisions simplified

  1. No TDS on ‘Refundable Deposits’. However, ’Non – Refundable Deposits’ shall attract TDS under this section.
  2. Arrears of Rent received during the current year shall also be considered for the purpose of deducting TDS u/s.194I.
  3. Even Advance Rent shall also be subject to TDS in the year of payment.
  4. Warehousing charges shall also be subject to TDS under this section.
  5. No TDS u/s 194I, if payee is Government, Local Authority or a Statutory Corporation.
  6. TDS u/s 194I is attracted even if only a part of a Land or Building has been let out.
  7. Under which head of income, the Rent will be taxable in the hands of the payee (recipient) is irrelevant for the purpose of TDS u/s 194.
  8. It is not necessary that the payee must be the owner of any f the above – mentioned assets.
  9. If Rent is paid for an ‘Advertisement Hoardings’ , then TDS will be attracted u/s 194C, as it is a payment for an ‘Advertisement Contract’. However, if space is taken on rent and then advertisement hoardings is put up there, then TDS will be attracted u/s 194I.
  10. The issue as to whether the charges fixed by the Airport Authority of India(AAI) for Landing and parking facility for the aircraft are for the “use of land” by the Airline Company came up before the Supreme Court in Japan Airlines Co. Ltd. Vs. CIT/CIT vs. Singapore Airlines LTD (2015)].

The Supreme Court observed that the charges which are fixed by the AAI for landing and take-off services as well as for parking of aircraft are not for the “use of land”. These charges are for services and facilities offered in connection with the  aircraft operation at the airport

Which include providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of Navigational Aids and Meteorological services at the airport.

There are various international protocols which mandate all Authorities manning and managing these airports to construct the airport of the desired standards which stipulated in the protocols. The services which are required to be provided by theses authorities, like AAI, are aimed at passenger’s safety as well as for safe landing and parking of the aircrafts. Therefore, the services are not restricted to merely permitting the “use of land” of airport. On the contrary, it encompasses all the facilities that are to be compulsorily offered by the AAI in tune with the requirements of the protocols.

The Supreme Court observed that the charges levied on air – traffic includes landing charges, lighting charges, approach and aerodrome control charges, aircraft parking charges, aerobridge charges, hanger charges, passenger service charges, cargo charges, etc. Thus, when the airlines pay for these charges, treating such charges as charges for us of the land would tantamount to adopting a totally simplistic approach which is far away from the reality.

The SC opined that the substance behind such charges has to be considered and when the issue is viewed from this angle, keeping the larger picture in mind, it becomes very clear that the charges are not for use of the land per se and, therefore, it cannot be treated as “Rent” within the meaning of section 194-I.The SC, thus, concurred with the view taken by the Madras High Court in Singapore Airlines Case and overruled the view taken by the Delhi High Court in United Airlines/Japan Airlines Case.

  1. Clarification on applicability of TDS provisions of section 194-I on lump sum lease premium paid for acquisition of long term lease [Circular No.35/2016, dated 13-10-2016]

The issue of whether or not TDS u/s 194-I is applicable on ‘Lump sum lease premium’ or ‘one time upfront lease charges’ paid by an assesse for acquiring long term lease hold rights for land or any other property has been examined by the CBDT. The CBDT has clarified that lump sum lease premium or one time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long term leasehold right over land or any other property are not payments in the nature of the rent within the meaning of section 194-I. Therefore, such payments are not liable for TDS under section 194-I.

  1. No requirement to deduct tax at source under section 194-I on remittance of Passenger Service Fees (PSF) by an Airline to an Airport Operator [Circular No. 21/2017, dated 12.06.2017]

Section 194-I requires deduction of tax at source at specified percentage on any income payable to a resident by way of rent. Explanation to this section defines the term “rent” as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any (a) land; or (b) building; or (c) land appurtenant to a building; or (d) machinery; (e) plant; (f) equipment; (g) furniture; or (h) fitting, whether or not any or all of them are owned by the payee.

The primary requirement of any payment to qualify as rent is that the payment must be for the use of land and building and mere incidental/minor/insignificant use of the same while providing other facilities and service would not make it a payment for use of land and building so as to attract section 194-I.

Accordingly, the CBDT has, vide this circular, clarified that the provisions of section 194-I shall not be applicable on payment of PSF by an airline to Airport Operator.

  1. Rent for ‘Motor Car’ (which is covered by the definition of ‘Plant’) will be subjected to TDS u/s 194C or 194I?
  2. If provided with chauffer and fuel => u/s 194C
  3. If provided without chauffer and fuel => u/s 194I