TaxTMI 
TaxTMI 
Evolution of TDS on Rent: Implications, Continuities, and Reforms : Clause 393(1)[Table: S.No. 2(i) & 2(ii)] and 393(4)[Table: S.No. 2] of the Income Tax Bill, 2025, Vs. Section 194I of the Income-tax Act, 1961
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....es the deduction and collection of tax at source on various incomes, including rent. This commentary focuses on Clause 393(1) [Table: S.No. 2(i) & 2(ii)] and Clause 393(4) [Table: S.No. 2] of the Income Tax Bill, 2025, which specifically deal with TDS on rent. A comparative analysis is also undertaken with the existing Section 194I of the Income-tax Act, 1961, to highlight similarities, differences, and the implications of the proposed changes. The analysis is structured to provide a detailed breakdown of the relevant clauses, their objectives, interpretative issues, practical implications, and a comparative overview, followed by a synthesis of the key takeaways. Objective and Purpose The primary legislative intent behind TDS provisions ....
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....n other than a specified person (definition of "specified person" is contextually important and is generally provided in the Bill/Act). * Payee: Resident. * Nature of Income: Rent (broadly defined, as u/s 194I). * Threshold: Rs. 50,000 per month or part thereof. * Rate: 2%. * Timing: At the time of credit or payment, whichever is earlier, for the last month of the tax year or last month of tenancy. Interpretation: The provision closely mirrors the structure of Section 194I, but with a uniform rate of 2% for all assets, regardless of whether the rent is for land/building or plant/machinery, when paid by a non-specified person. This is a notable departure from the differentiated rates in the current re....
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....similar to the existing law. Ambiguities/Potential Issues: * Clarification is needed on the precise scope of "specified person." * The dual rates could require careful classification of composite rent agreements covering multiple asset types. 3. Clause 393(4) [Table: S.No. 2] - Exemption for Rent Paid to Business Trust (REIT) Provision: No TDS is required on income by way of rent credited or paid to a business trust, being a Real Estate Investment Trust (REIT), in respect of any real estate asset, referred to in Schedule V (Table: S.No. 4), owned directly by such business trust. Key Elements: * Nature of Exemption: Targeted at REITs, aligning with policy to promote real estate investment and avoid tax cascading. * Scop....
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....S deduction (e.g., at lower rate) may impact the ability to claim full credit or may necessitate reconciliation with the payer. * REITs and other exempt entities must ensure their status is communicated and documented with payers to avoid unnecessary deduction and subsequent refund claims. For Administrators and Regulators * Simplified and rationalized provisions could reduce disputes and litigation over TDS on rent. * Clear definitions and robust guidance on classification of payers and assets will be crucial to ensure smooth implementation. * Monitoring and enforcement mechanisms may need to be updated to reflect new thresholds and rates. Comparative Analysis with Section 194I of the Income-tax Act, 1961 Scope and Definitions ....
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....025: Threshold remains at Rs. 50,000 per month or part of a month, harmonizing with the current position. Timing of Deduction * Both Section 194I and the Bill require deduction at the earlier of credit or payment. * The Bill specifies deduction for the last month of the tax year or tenancy, clarifying the point of deduction for annual/periodic rent payments. Exemptions * Section 194I: No TDS on rent paid to a business trust (REIT) for directly owned real estate assets (third proviso). * Clause 393(4)[Table: S.No. 2]: Expressly exempts such payments, maintaining status quo and policy continuity. Declarations for Non-deduction * Section 194I, read with Section 197A, permits payees to furnish declarations for non-de....
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....ion, potentially reducing interpretational disputes. * Thresholds and rates are harmonized, but the change to a uniform 2% rate for non-specified persons may impact certain payers, especially those paying rent for land/building, where the current rate is 10%. * Exemption for REITs is maintained, which is critical for the real estate sector. Conclusion The provisions of Clause 393(1) [Table: S.No. 2(i) & 2(ii)] and Clause 393(4) [Table: S.No. 2] of the Income Tax Bill, 2025, largely continue the policy and structural framework of Section 194I of the Income-tax Act, 1961, with some rationalization and clarification. The maintenance of differentiated rates for specified persons, the uniform threshold for deduction, and the exemption for ....