Section 194-LBA of the Income Tax Act deals with the TDS on income received by a business trust or real estate investment trust (REIT) from renting or leasing property. This provision is crucial for those who are involved in the real estate sector or investments in business trusts.
What is Section 194-LBA?
Under this section, any person or entity making a payment to a business trust or REIT in the form of rent for property leased is required to deduct tax at source. Typically the tax rate is 10%, and this applies to rental income that is received by the trust. The person deducting TDS must also file a TDS return and deposit the tax with the government.
Key Points About Section 194-LBA:
- Applicability: The provision applies when a company or a partnership firm is making rental payments to a resident property owner. It does not apply to individual tenants or non-business entities.
- Rate of TDS: The rate of TDS under Section 194-LBA is typically 10% of the rental income paid. This applies when the rent exceeds Rs. 1,80,000 in a financial year.
- Threshold Limit: The TDS deduction only applies if the rental income paid exceeds Rs. 1,80,000 in a year. If the rent is below this threshold, no TDS needs to be deducted.
- Due Date for Deposit: The TDS deducted under this section must be deposited with the government by the 7th of the following month.
Filing TDS Return:
The TDS return under Section 194-LBA is filed quarterly in Form 26Q. This form is used to report all the TDS deductions made during the quarter. The details that need to be included in the return are the name and PAN of the deductor, the amount deducted, and the PAN of the deductee.
Example:
Suppose a company named XYZ Pvt. Ltd. is renting an office space from an individual for ₹50,000 per month. The company is thus responsible for deducting TDS on the rent payment. The TDS rate applicable is 10%.
- Monthly rent: ₹50,000
- TDS (10% of ₹50,000): ₹5,000
In this case, XYZ Pvt. Ltd. will deduct ₹5,000 as TDS and pay the remaining ₹45,000 to the individual. The ₹5,000 will be deposited with the government and the individual can claim it while filing their income tax return.
Conclusion:
Section 194-LBA makes sure that taxes are deducted at the source when renting or leasing property. It also simplifies tax collection and ensures timely payment to the government. Understanding how and when to file TDS returns under this section is crucial for both businesses and individuals involved in property transactions.
– Ketaki Dandekar (Team Arthology)
Read more about Section 194 – LBA here – https://taxguru.in/income-tax/194lba.html