From: "naveen_rsharma" <naveenpandit1@...>
Date: Wed, 22 Feb 2006 14:54:46 -0000
Subject: CAclubindia.com Sec.194I - TDS on Rent
Section 194 I Of Income Tax Act 1961
194-I. Any Person, Not Being An Individual Or A Hindu Undivided Family, Who Is Responsible For Paying To 76[A Resident] Any Income By Way Of Rent, Shall, At The Time Of Credit Of Such Income To The Account Of The Payee Or At The Time Of Payment Thereof In Cash Or By The Issue Of A Cheque Or Draft Or By Any Other Mode, Whichever Is Earlier, [Deduct Income-Tax Thereon At The Rate Of
(A) Fifteen Per Cent If The Payee Is An Individual Or A Hindu Undivided Family;
(B) Twenty Per Cent In Other Cases :]
Provided That No Deduction Shall Be Made Under This Section Where The Amount Of Such Income Or, As The Case May Be, The Aggregate Of The Amounts Of Such Income Credited Or Paid Or Likely To Be Credited Or Paid During The Financial Year By The Aforesaid Person To The Account Of, Or To, The Payee, Does Not Exceed One Hundred And Twenty Thousand Rupees :
[Provided Further That An Individual Or A Hindu Undivided Family, Whose Total Sales, Gross Receipts Or Turnover From The Business Or Profession Carried On By Him Exceed The Monetary Limits Specified Under Clause (A) Or Clause (B) Of Section 44ab During The Financial Year Immediately Preceding The Financial Year In Which Such Income By Way Of Rent Is Credited Or Paid, Shall Be Liable To Deduct Income-Tax Under This Section.]
Explanation.For The Purposes Of This Section,
(I) Rent Means Any Payment, By Whatever Name Called, Under Any Lease, Sub-Lease, Tenancy Or Any Other Agreement Or Arrangement For The Use Of Any Land Or Any Building (Including Factory Building), Together With Furniture, Fittings And The Land Appurtenant Thereto, Whether Or Not Such Building Is Owned By The Payee;
(Ii) Where Any Income Is Credited To Any Account, Whether Called Suspense Account Or By Any Other Name, In The Books Of Account Of The Person Liable To Pay Such Income, Such Crediting Shall Be Deemed To Be Credit Of Such Income To The Account Of The Payee And The Provisions Of This Section Shall
Explanatory Definition (Taxxmann)
The Definition, For The Purpose Of The Income-Tax Act, Of The Nomenclature `Rent' As Expounded In The Explanation To Section 194-I Itself Amply Reveals That The Same Is Projected As The Generic Term Which Includes Within Its Ambit Payment Made On Whatsoever Account For Occupation Of A Tenanted Portion. After Taking Into Account The Definition Of Rent, It Apparently Appears To Be A Composite Concept. Once The Rent Is Comprehended As A
Composite Concept Then It Is Not Capable Of Being Fragmented - Smt. Bishaka Sarkar V. Union Of India  219 Itr 327 (Cal.).
Various Circulars on the subject
Circular : No. 699, dated
1149. Whether requirement of deduction of income-tax at source under section 194-I applies in case of payment by way of rent to Government, statutory authorities referred to in section 10(20A) and local authorities whose income under the head Income from house property or Income from other sources is exempt from income-tax
1. Queries have been raised as to whether the requirement of deduction of income-tax at source under section 194-I of the Income-tax Act applies in case of payments by way of rent to the
Government, statutory authorities referred to in section 10(20A) and local authorities whose income under the head Income from house property or Income from other sources, is exempt from income-tax.
2. Under the provisions of section 196 of the Income-tax Act, no tax is required to be deducted at source from any sums payable to the Government.
3. The matter with regard to the statutory authorities and the local authorities referred to above, has been examined in the Board. Section 190 of the Income-tax Act provides for deduction of income-tax at source as one of the modes of collection of income-tax in respect of
an income, notwithstanding that the regular assessment in respect of such income is to be made in a later assessment year. The income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, is exempt from income-tax under section 10(20A). Similarly, the income of a local authority which is chargeable under the head Income from house property or Income from other sources, is exempt from income-tax under section 10(20). There is no other condition specified in these two clauses of section 10 which is necessary to be satisfied in order to avail of the income-tax exemption.
4. In view of the aforesaid,
there is no requirement to deduct income-tax at source on income by way of rent if the payee is the Government. In the case of the local authorities and the statutory authorities referred to in para 3 of this circular, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax-exempt status under clause (20) or (20A) of section 10 on the basis of a certificate to this effect given by the said authorities.
Circular : No. 715, dated 8-8-1995.
Question 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent ?
Answer : Payments made by persons, other individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.
Question 21 : Whether the limit of Rs. 1,20,000 per annum would apply separately for each co-owner of a
Answer : Under section 194-I, the tax is deductible from payment by way of rent, if such payment of the payee during the year is likely to be Rs. 1,20,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 1,20,000 will apply to each of the payee/co-owner separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS provisions.
Question 22 : Whether the rent paid should be enhanced for notional income in respect of deposit given to the landlord ?
Answer : The tax is to be deducted from actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.
Question 23 : Whether payments made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I ?
Answer : The tax is to be
deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I.
Question 24 : Whether in a case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted ?
Answer : If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted
under section 194-I from payments thereof.
Question 25 : Whether the receipts prior to 1-7-1995 are to be aggregated to determine limit of Rs. 20,000 for each financial year ?
Answer : Clause (B) of proviso to section 194J(1) makes it clear that tax shall be deducted at source if the aggregate sums credited or paid or likely to be credited or paid during the financial year are likely to exceed Rs. 20,000. Therefore, in regard to financial year 1995-96, the limit of Rs. 20,000 will have to be worked out taking into account all the payments from 1-4-1995 to 31-3-1996. But the deduction of tax at source
would be made at the specified rate only from the payment made on or after 1-7-1995.
Circular : No. 718, dated 22-8-1995
1150. Clarification regarding deduction of tax at source from payment of rent
1. The Finance Act, 1994 introduced section 194-I in the
Income-tax Act, 1961, which provides for deduction of tax at source from payment of income by way of rent. This section as amended by Finance Act, 1995 reads as follows :
194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of
(a) fifteen per cent if the payee is an individual or a Hindu undivided family; and
(b) twenty per cent in other cases :
Provided that no deduction shall be made under this section where the amount of such income, or as the case may be, the aggregate of the amount of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or, to the payee, does not exceed one hundred and twenty thousand rupees.
Explanation : For the purposes of this section
(i) rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee,
(ii) where any income is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
has received a number of queries from various persons regarding the application of the aforesaid provision. These queries have been carefully considered by the Board and the following clarifications are issued for information and guidance of all concerned :
Query No. 1 : Whether tax is required to be deducted at source where rent has been paid in advance before 1-6-1994?
Answer : Where an advance of rent has been paid before 1-6-1994, there is no requirement for deduction of tax at
Query No. 2 : Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?
Answer : In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that
if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act.
Query No. 3 : Whether the tax is to be deducted at source from warehousing charges?
Answer : The term rent as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be
subject to deduction of tax under section 194-I.
Query No. 4 : On what amount the tax is to be deducted at source if the rentals include municipal tax, ground rent, etc. ?
Answer : The basis of tax deduction at source under section 194-I is income by way of rent. Rent has been defined, in the Explanation (i) of section 194-I, to mean any payment under any lease, tenancy, agreement, etc., for the use of any land or building. Thus, if the municipal taxes, ground rent, etc., are borne by the
tenant, no tax will be deducted on such sum.
Query No. 5 : Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building ?
Answer : Yes, the definition of the term any land or any building would include a part or a portion of such land or building.
Circular : No. 735, dated 30-1-1996.
1008. Clarification regarding payment of income by way of interest on securities and rent made to Regimental Funds or Non-public Fund established by Armed Forces of Union for welfare of past and present members of such forces or their dependants, whose income is exempt under section 10(23AA)
1. The issue of deduction of income-tax at source under section 193 and section 194-I of the Income-tax Act from any income received by any person on
behalf of any Regimental Fund or Non-public Fund established by the Armed Forces of Union for the welfare of past and present members of such forces or their dependants, has been brought to the notice of the Board. Representations have also been received on behalf of Regimental Funds and Non-public Fund established by the Armed Forces.
2. The matter with regard to regimental fund or non-public fund established by Armed Forces has been examined in the Board. Since the income of these organisations is exempt under section 10 (23AA) of the Income-tax Act, it has been decided that no tax may be deducted at source under sections 193 and 194-I from the income of such Funds.
Circular : No. 736, dated 13-2-1996.
1152. Clarification regarding applicability of provisions of section 194-I to film distributors and exhibitors
Representations have been received from the various quarters regarding applicability of the provisions of section 194-I of the Income-tax Act to the sharing of the proceedings of film between film distributor and a film exhibitor owning a
cinema theatre. The matter has been examined by the Board and the Board are of the view that the provisions of section 194-I are not attracted to such payment because :
(i) The exhibitor does not let out the cinema hall to the distributor;
(ii) Generally, the share of the exhibitor is on account of composite services; and
(iii) The distributor does not take cinema building on lease or sub-lease or tenancy or under any agreement of similar
You are requested to bring these instructions to the notice of the Assessing Officer under your charge.
Circular : No. 5/2001, dated 2-3-2001.
1177. Problems faced by assessees in getting due credit for tax deducted at source under section 199
1. A number of representations has been received by the Board pointing out the problems being faced by the assessees in getting due credit for tax deducted at source under the provisions of section 199 of the Income-tax Act, 1961 in respect of tax deducted in terms of section 194-I of the Act. Such problems in getting due credit for tax deducted at source mainly relate to the following situations :
(a) Tax is deducted at source under the provisions of section 194-I of the Act on advance rent pertaining to more than one financial year to be adjusted against future rent.
(b) Subsequent to the deduction of tax at source on advance rent pertaining to one or more financial years :
(i) Rent agreement gets terminated/cancelled resulting into refund of balance amount of advance rent to the tenant.
(ii) Rented property is transferred by way of sale, lease, gift, etc., with tenant in occupation or otherwise resulting into refund of balance amount of advance rent to the transferee or the tenant, as the case may be.
2.1 In the situation mentioned at (a) in para above, difficulty in getting due credit for tax deducted arises because the entire amount of advance rent does not accrue to the assessees as income in one financial year since the income from the property is taxed on the basis of annual letting value whereas the tax is deducted at source on the entire amount of advance rent pertaining to more than one financial year. Therefore, credit for entire amount of tax deducted at source is not allowed in terms of section 199 of the Act because the credit is to be given for the assessment year for which such income is assessable. Thus, the assessees do not get credit for the entire amount of tax deducted at source in the first assessment year, in which part of the advance rent is offered as rental income, on the basis of the Certificate furnished under section 203 of the Act. Further there is a difficulty in claiming the
credit in the remaining assessment years to which balance of advance rent relates in the absence of the Certificate for tax deducted at source for these years.
2.2 In the situation as at (b) mentioned at Para 1, difficulty in getting due credit for tax deducted at source arises because rental income ceases to accrue to the assessees on account of termination/cancellation of Rent agreement of transfer of the rented property subsequent to the deduction of tax at source on advance rent pertaining to one or more financial years. The credit is not given in the hands of the assessees in whose names Certificate for tax deduction at source stands because there is no relatable rental income and, further credit for tax is not allowed to any person other than the person in whose name Certificate for tax
deducted at source has been issued. Thus, in such cases, even though tax has been deducted at source and paid to the Government, due credit for such tax deducted is not allowed.
3. The matter has been considered by the Board and it has been decided that credit for tax deducted at source shall be allowed to the assessees on whose behalf such tax has been deducted and to whom Certificate for tax deducted at source has been furnished under section 203 of the Act as under :
(i) In such cases as referred to in (a) above where advance rent is spread over more than one financial year and tax is deducted thereon, credit shall be allowed
in the same proportion in which such income is offered for taxation for different assessment years based on the single Certificate furnished for tax so deducted on the entire advance rent.
(ii) In respect of the situation as at (b), credit for the entire balance of tax deducted at source, which has not been given credit so far, shall be allowed in the assessment year relevant to the financial year during which the rent agreement gets terminated/cancelled or rented property is transferred and balance of advance rent is refunded to the transferee or the tenant, as the case may be.
Circular : No. 5/2002, dated 30-7-2002.
Ref : Circular : No. 715, dated 8-8-1995.
Clarification regarding question No. 20
1. Circular No. 715 dated 8-8-1995 has been issued by the Central Board of Direct Taxes to clarify various provisions relating to tax deduction at source under various provisions of the Income-tax Act.
Question No. 20 of the aforesaid Circular related to applicability of the provisions of section 194-I of the Income-tax Act in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below :
. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?
Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under
section 194-I. [Emphasis supplied]
In this context, doubts have been raised as to what constitutes hotel accommodation taken on regular basis for the purpose.
2. The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or
an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.
Furthermore, for purposes of section 194-I, the meaning of rent has also been considered. Rent means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . . [Emphasis supplied]. The meaning of rent in section 194-I is wide in its ambit and scope. For this reason, payment made to
hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on regular basis. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on regular basis. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.
3. However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff
rates, are in the nature of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation taken on regular basis, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.