S Ltd. took on sub-lease a building from Jim, an individual, with effect from 1.9.2023 on a rent of 20,000 per month. It also took on hire machinery…

As per section 194-I dealing with deduction of tax at source from payment of rent, the rate of TDS applicable is 2% for machinery hire charges and 10% for building lease rent. The scope of the section includes within its ambit, rent for machinery, plant and equipment. Tax is required to be deducted at source from payment of rent, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of building and machinery, irrespective of whether such assets are owned or not by the payee. The limit of 2,40,000 for tax deduction at source will apply to the aggregate rent of all the assets. Even if two separate agreements are entered into, one for sub-lease of building and another for hiring of machinery, rent and hire charges under the two agreements have to be aggregated for the purpose of application of the threshold limit of 2,40,000. In this case, since the payment for rent and hire charges credited to the account of James, the payee, aggregates to 2,48,000 (₹ 1,40,000 +1,08,000), tax is deductible at source under section 194-I. Tax is deductible@10% on 1,40,000 (rent of building) and @2% on 1,08,000 (hire charges of machinery).