How To Calculate TDS & VAT On Office Rent?

To run business smoothly or in every job sector, you need to learn properly Tax & VAT. If you do not know the exact information about tax & VAT, you will suffer a lot as well as your business. We can say it “Ignorance of law is no excuse”

Here the question is how to calculate TDS & VAT on office rent? How to collect VAT from office rent? How to deducted tax at source from office rent? What are the VAT exemptions on office rent? Consequences of not deducting tax at source from office rent?

I will help you answer all these question in this post. You’ll get proper & accurate information according to Finance Act 2024. If you learn it properly, you can avoid fine, penalty or legal fee for your organization.

Let’s start.

List of Content

(1) How to collect VAT from office rent?

(2) How to deducted tax at source from office rent?

(3) What are the VAT exemptions on office rent?

(4) Consequences of not deducting tax at source from office rent?

(1) How to collect VAT from office rent?

VAT Reference

According to S.R.O No. 240-AIN/ 2021/163-VAT, rule 3 & sub-rule (6)

In the case of “Tenant of Space and Establishment” services, the entire rate of VAT shall be levied at the rate of 15 (fifteen) percent on the rent by the tenant.

Example

XYZ Company Limited rented 3000 square feet (tk. 30 per square foot) for setting up a commercial branch. How will the amount of VAT be determined and collected here?

Answer:

Here rented space 3000 square feet at the rate of 30 taka per square foot.

Total rent amount is 3000 x 30 = 90,000 taka.

Then the amount of VAT is 90,000 x 15% = tk. 13,500.

[Note: VAT on rent should be determined and collected at Exclusive rate.]

XYZ Company Limited will deposit VAT of Tk. 13,500 per month in Sonali Bank or Bangladesh Bank.

(2) How to deducted tax at source from office rent?

Tax Reference

Section-109. Tax to be deducted at source from rent.

(1)  the tenant or lessee of a house property, hotel, guest house, vacant premises, plant, machinery, or private reservoir shall deduct tax @ 5% from the rent.

(2) If, after assessment, it is found that no tax or a lesser amount of tax is payable by the owner, the full or excess amount shall be refunded.

(3) However, no deduction or a deduction at a lower rate shall be applied upon the production of a certificate from the Deputy Commissioner of Taxes.

(4) In this context, ‘rent’ includes any payment with respect to a lease, tenancy, or any contract or agreement for the use of furniture, fixtures, buildings, including land.

Example

XYZ Company Limited rented 3000 square feet (tk. 30 per square foot) for setting up a commercial branch. How will the tax be deducted at source here?

Answer:

Rented here is 3000 square feet, at the rate of 30 taka per square foot.

Total rent amount is 3000 x 30 = 90,000 taka.

Here the base value is 90,000 x 5% = tk. 4,500 must be deducted at source.

(3) What are the VAT exemptions on office rent?

VAT Exemption Reference

According to Table-4 of S.R.O No. 137-AIN/ 2024/243-VAT, dated: 27-May-2024 VAT Exemption on office rent as follows:

“Tenant of Space and Establishment”

(A) Factory rental by a registered or listed manufacturer or manufacturing company;

(B) Any commercial space not exceeding 150 (one hundred and fifty) square feet or property rented for full residential purpose;

(C) In case of renting any place and installation by an organization registered under information technology-based service i.e., service code S099.10; And

(D) Business show-room rentals run by women entrepreneurs.

Example

1. RT Ltd. rented a 2,500-square-foot flat to set up a commercial branch. Is VAT applicable or not?

2. Mr Kamrul rented a 1,250-square-foot flat in a commercial building to live with his family in full residential. Is VAT applicable or not?

3. Mr. Abedin rented a 140 sq ft flat in a commercial building. Is VAT applicable or not?

4. Mrs. Akhter is a businessman (female entrepreneur). He rented a 5,000-square-foot commercial showroom. Is VAT applicable or not?

5. PCS Computers is a software company. They rented a 4,000-square-foot flat. Is VAT applicable or not?

6. ABC Company is a registered or listed manufacturer. They rented a 5,000-square-foot commercial space factory.

1. Answer: VAT is applicable. Because the commercial branch is more than 150 square feet.

2. Answer: VAT is not applicable. Because the flat has been rented for full residential.

3. Answer: VAT is not applicable. Because the commercial branch is less than 150 square feet.

4. Answer: VAT is not applicable. Because Mrs. Akhter is a businessman (female entrepreneur).

5. Answer: VAT is not applicable. Because software companies include information technology-based services.

6. Answer: VAT is not applicable. ABC Company is a registered or listed manufacturer.

(4) Consequences of not deducting tax at source from office rent?

The following is an example of the consequences of not deducting tax at source from rental property:

Suppose the company does not deduct tax from office rent

The income tax authority calculates the tax by disallow the office rent.

Then the company must pay extra tax (1,50,000-1,20,000) = 30,000. So, you have to decide whether you pay additional tax or Tax deduct from office rent.   

In Summary

Tax deducts from office rent

A tenant shall deduct tax at the rate of five per cent of tax at sources at the time of payment of office rent, house property or hotel accommodation called by whatever name mention as per section 109

VAT Collect from office rent

Tenant of Space and Establishment shall collect 15 (fifteen) percent of VAT on office rent except some exception.

1. Factory rented by a registered or listed manufacturer or manufacturing company;

2. Any commercial space not exceeding 150 (one hundred and fifty) square feet

3. Property rented for full residential purpose;

4.In case of renting any place and installation by an organization registered under information technology-based service i.e., service code S099.10; And

5.Business show-room rentals run by women entrepreneurs.

If you have any clarify for more information please comment freely.