Section 194I is applicable on payments for assets on lease, sublease, tenancy, or agreement that small businesses and startups rent for their day-to-day operations.
Read on to understand Section 194I in detail and its impact on your business.
What is Section 194I?
Section 194I was introduced by the Indian government to withhold taxes on all rental income exceeding a certain amount. It demands businesses to deduct TDS on rental payments above Rs 2,40,000 for plant and machinery, building, furniture, and fittings.
Note: With effect from 1st June 2017, a person who is Individual or HUF is also liable to deduct TDS if he pays rent in excess of Rs 50000/- per month.
Sec 194I is applicable on the following assets-
b) Building (including factory building)
c) Land appurtenant to a building (including factory building
What is the TDS rate under Section 194I?
Machines, plants, or equipment are subject to a 2% tax. The use of any land or building (inclusive of factory buildings) or both and furniture or fittings is subject to a 10% charge.
When is TDS deducted for rent payments?
The deductor needs to deduct TDS when:
- the amount is credited to the deductee’s account
- the payment is made to the deductee by cash, cheque, bank draft, or through any online mode of payment
Due dates for depositing TDS
TDS under Section 194I should be collected and deposited to the government by 7th of the subsequent month. However, the tax deducted in March should be deposited by 30th April.
The deductor can pay TDS by filling Challan No. ITNS 281 via
- Physically visiting an authorised bank branch
- Logging on the NSDL website
- Free TDS payment tool powered by RazorpayX
Interest on late payment or non-payment of TDS
- An interest of 1% per month is applicable if a deductor fails to deposit TDS. The interest will apply from the due date of deduction to the actual date of deduction
- Late payment of TDS attracts an interest of 1.5% per month from the actual date of deduction to the date of final payment
- Delay in filing the TDS return attracts a penalty of Rs. 200 per day
Exceptions for Section 194I
Cooling charges to cold storage owners:
CBDT Circular No. 1/2008 dated 10.01.2008 demands no TDS to be deducted on rent payments made to cold storage owners. It states that since the primary function of cold storage is to preserve perishable goods using a mechanical process, storage is just an incidental service and not applicable for Section 194I
GST on Rental Income
As GST charged by the landlord does not constitute rental income, it does not come under the ambit of Section 194I.
CBDT Circular no. 35/2016 states that that lump-sum premium or one-time upfront lease charges paid for acquiring long-term lease rights, which are not adjustable against periodic rent paid/payable, would not constitute rent within Sec 194I.
We hope this guide helped you understand TDS payments under Section 194I.
If you struggle to manually calculate and pay monthly TDS for your business, click the link below to know how you can put an end to that struggle, today!