TDS : A New Lease of Life…..
Sampath Kumar owned an acre of land near Chennai. He wanted to lease the same and earn an income from it. He had little knowledge about filing tax returns and advance tax. He wanted to enter into agreement with Suresh for leasing hereinafter called as the lessee.
What’s meant by Lease?
Lease is a written contract between the owner (the lessor) of the asset (any asset) and a second party (the lessee) that grants the lessee the right to use the asset for a specified period of time by paying such amount on an agreed basis, which is called as lease rentals. The nature of a lease can be categorized based on the transfer of risk and rewards to the parties. It can be a financial lease or an operating lease.
Sampath Kumar was little confused on whether TDS will be applicable on the lease rent charges collected by him. He visited a consultant for the same.
Will lease come under Rent definition?
Section 194I of the Income Tax Act specifies the meaning of “Rent” which indicates 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
- Building; or
- land appurtenant to a building; or
- Machinery; or
- Plant; or
- Equipment; or
- Furniture; or fittings.
When to deduct TDS, and should TDS be deducted?
Any person other than an Individual or a Hindu Undivided Family (HUF) who is responsible for paying rent to a resident is liable to deduct tax at source in case where the aggregate of the amount paid or payable during the financial year is more than Rs 1,80,000/-.
Individuals and /or HUFs who are subject to tax audit are also under an obligation to deduct the tax at source. However it’s the same limit for them, too.
Rate of TDS to be deducted U/s 194I:
(a) Rent of Plant Machinery or equipment -2%
(b) Rent of Land, Building or furniture to an individual and HUF- 10%
(c) Rent of land, Building or furniture to others- 10%
The lessee needs to deduct TDS from the payment of lease rentals made to the lessor.
Thus Suresh Kumar Lessee is liable to deduct TDS @ 10 percent on rent payable to Sampath Kumar when he is paying lease rent. Lease contract entered cannot be termed as contract U/s 194C and deduct TDS at prescribed rates, as sec 194I explicitly covers lease rent.