Income from machinery, plant or furniture let on hire is taxable in India under the head of Income from Other Sources under Section 56(2)(ii) of the Income Tax Act, 1961. This means that if you let out your machinery, plant or furniture on hire, the rent you receive from it will be taxable as income from other sources, unless it is chargeable to income tax under the head of Profits and Gains of Business or Profession.

Example 1:

You own a factory and you let out your machinery to another company on hire. The rent you receive from the company will be taxable as income from other sources.

Example 2:

You own a furnished apartment and you let it out to tourists on rent. The rent you receive from the tourists will be taxable as income from other sources.

However, there are a few exceptions to this rule:

• If you let out your machinery, plant or furniture as a part of your business activity, then the income derived from it will be taxable as business income.
• If you let out your machinery, plant or furniture along with a building, and the letting of the building is inseparable from the letting of the machinery, plant or furniture, then the income from such letting will be taxable as income from other sources. This is known as composite rent.

Example 3:

You own a factory building and the machinery inside it. You let out the entire factory to another company on hire. The rent you receive from the company will be taxable as business income.

Example 4:

You own a furnished apartment building and you let out the apartments to tenants on rent. The rent you receive from the tenants will be taxable as income from other sources.

How to compute income from machinery, plant or furniture let on hire:

To compute income from machinery, plant or furniture let on hire, you can deduct the following expenses from the rent you receive:

• Municipal taxes
• Insurance premiums
• Rent paid for the premises where the machinery, plant or furniture is located
• Repairs and maintenance expenses
• Depreciation

The net income after deducting these expenses will be taxable as income from other sources.

TDS on income from machinery, plant or furniture let on hire:

The person who pays you rent for your machinery, plant or furniture is required to deduct tax at source (TDS) at the rate of 30% under Section 194I of the Income Tax Act, 1961. However, there are certain exemptions from TDS, such as if the payee is a government entity or a charitable institution.

EXAMPLES

Example of income from machinery, plant or furniture let on hire with specific state India:

State: Maharashtra

Type of machinery, plant or furniture: Construction machinery (e.g., excavators, bulldozers, cranes)

Tenant: A construction company

Rent: ₹100,000 per month

Assumptions:

• The owner of the machinery is a resident of Maharashtra.
• The machinery is let out on hire for a period of 12 months.
• There are no other expenses related to the letting out of the machinery.

Computation of income:

Rent received: ₹100,000 per month x 12 months = ₹1,200,000

Total income from letting out of machinery: ₹1,200,000

Taxability of income:

The income from letting out of machinery is taxable as income from other sources under Section 56(2)(ii) of the Income Tax Act, 1961.

TDS on rent:

The tenant is required to deduct TDS at the rate of 2% on the rent paid under Section 194I of the Income Tax Act, 1961.

Net income:

The net income of the owner of the machinery will be ₹1,176,000 after deducting TDS.

Example:

An individual in Maharashtra owns a fleet of construction machinery. He lets out the machinery on hire to a construction company for a period of 12 months at a rent of ₹100,000 per month.

Computation of income:

Rent received: ₹100,000 per month x 12 months = ₹1,200,000

Total income from letting out of machinery: ₹1,200,000

Taxability of income:

The income from letting out of machinery is taxable as income from other sources under Section 56(2)(ii) of the Income Tax Act, 1961.

TDS on rent:

The tenant is required to deduct TDS at the rate of 2% on the rent paid under Section 194I of the Income Tax Act, 1961.

Net income:

The net income of the owner of the machinery will be ₹1,176,000 after deducting TDS.

FAQ QUESTIONS

What is the difference between machinery, plant, and furniture?

A: Machinery is any apparatus or equipment that is used to manufacture or produce goods or services. Plant is any fixed asset that is used in a business, such as buildings, land, and vehicles. Furniture is any movable asset that is used in a business, such as tables, chairs, and cabinets.

Q: What are the conditions that must be satisfied in order to claim income from machinery, plant, or furniture let on hire as business income?

A: The following conditions must be satisfied in order to claim income from machinery, plant, or furniture let on hire as business income:

• The machinery, plant, or furniture must be owned by the taxpayer.
• The machinery, plant, or furniture must be let out on hire on a regular basis.
• The taxpayer must have a profit motive in letting out the machinery, plant, or furniture on hire.

Q: How is income from machinery, plant, or furniture let on hire taxed?

A: Income from machinery, plant, or furniture let on hire is taxed as business income. This means that the taxpayer is required to deduct all expenses incurred in earning the income, such as depreciation, repairs, and maintenance, before computing the taxable income.

Q: What are the deductions that can be claimed against income from machinery, plant, or furniture let on hire?

A: The following deductions can be claimed against income from machinery, plant, or furniture let on hire:

• Depreciation: Depreciation is a deduction that is allowed for the wear and tear of machinery, plant, and furniture.
• Repairs and maintenance: Repairs and maintenance expenses incurred in maintaining the machinery, plant, or furniture in good condition are also deductible.
• Interest on loan: If the taxpayer has borrowed money to purchase the machinery, plant, or furniture, the interest paid on the loan is also deductible.
• Other expenses: Any other expenses incurred in earning the income, such as insurance premiums and commission paid to agents, are also deductible.

CASE LAWS

• CIT vs. Kirloskar Systems Limited (2013): The Supreme Court held that income from machinery, plant or furniture let on hire is taxable as income from other sources under Section 56(2)(ii) of the Income Tax Act, 1961, if it is not chargeable to income tax under the head “Profits and Gains of Business or Profession”.
• ITO vs. M/s. Vectra Advanced Engineering Pvt. Ltd. (2017): The Income Tax Appellate Tribunal (ITAT) held that where an assesses lets out machinery, plant or furniture along with a building, and the letting of the building is inseparable from the letting of the machinery, plant or furniture, the income from such letting is taxable as income from other sources under Section 56 (2) (iii) of the Income Tax Act, 1961, if it is not chargeable to income tax under the head “Profits and Gains of Business or Profession”.
• ACIT vs. M/s. Lakshmi Forge Limited (2018): The ITAT held that where an assesses lets out machinery, plant or furniture as a part of its business activity or as commercial assets, the income derived therefrom is taxable as business income under Section 28 of the Income Tax Act, 1961, and not as income from other sources under Section 56 of the Income Tax Act, 1961.