[Opinion] Section 194-IB – Arguable Case for Exemption to Salaried Individual From Deduction of Tax on Rent Paid

Gopal Nathani – [2025] 173 taxmann.com 429 (Article)

‘Rent’ has been a part of Chapter XVII heading section 194-I of the Indian Income Tax Act, 1961 that deals with the topic ‘Deduction of Tax’ since 1994. However, this requirement is made applicable to all persons other than individuals. It was in year 2002 and onwards till date that individuals, whose total sales, gross receipts or turnover from the business or profession carried on by them exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year are required to also make compliance of this provision and deduct tax on rent paid by them. In other words, individuals with no business track record remained out of this obligation to deduct tax at source on payment of rent.

It was in June 2017 that a new section 194-IB has been inserted to make individuals responsible for deduction of tax at source of payment of rent. However, from the reading of the section there is an arguable case to hold that this requirement applies only to those individuals who have less than Rs. 1 crore sales/turnover or gross receipts from business or rupees fifty lakh receipts derived from the profession carried out by them and therefore not covered under 44AB of the Act for tax audit.

In the recent times even salaried taxpayers are being issued advisory by the income tax to file updated returns of earlier years if they have claimed rebate for rent paid against house rent allowance but not complied with the provisions of section 194-IB which provides for a requirement to deduct tax at source on payment of rent by individuals.

The two sections (extracts) are as below:

Rent.

194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to 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) two per cent for the use of any machinery or plant or equipment; and

(b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:

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 two hundred and forty 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 one crore rupees in case of business or fifty lakh rupees in case of profession 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.

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