Budget 2024 Update
The TDS on rent payments by certain individuals or HUFs under Section 194IB is proposed to be reduced from 5% to 2%, effective from October 1, 2024.
What is Section 194-IB?
If an individual or a HUF is responsible for paying to a resident any amount by way of rent exceeding Rs. 50,000 for a month or part of a month during the previous year, it shall deduct an amount equal to 5% of such income as income tax thereon.
In simple words, this section says that an individual or HUF who is not liable for audit u/s 44AB, will have to deduct TDS if they pay rent to a resident exceeding Rs.50000 in a month.
Such TDS will have to be deducted when they are paying the amount of rent to any resident in the year. But there is an exemption limit given. TDS on rent will be deducted only when rent paid exceeds Rs 50,000 per month. The deductor is not required to have a TAN for deducting TDS under this section.
When to deduct TDS?
TDS needs to be deducted, earlier of:
| Credit / Payment of rent for last month of the year or last month of tenancy if property is left during the year. |
At the time of payment by cash, cheque or any other way. |
Rate of Tax
| Regular rate |
5% |
| If PAN of Landlord is not available |
20% but TDS cannot exceed the rent amount of last month of P.Y or tenancy. |
How Section 194-IB is different from Section 194-I?
| Parameter |
Section 194-IB |
Section 194-I |
| Applicability |
Applicable to individuals and HUFs not liable to tax audit under Section 44AB of the Income Tax Act. |
Applicable to all types of taxpayers, including in individuals, HUFs, companies, and others. |
| Type of Income |
Rental income paid for the use of land, buildings, or both for residential purposes. |
Rental income paid for the use of land, building, or both, whether residential or commercial. |
| Threshold Limit |
TDS to be deducted if the monthly rental payment exceeds Rs. 50,000. |
TDS to be deducted if the annual rental payment exceeds Rs. 2,40,000. |
| Rate of TDS |
5% of the total rental amount. |
10% of the total rental amount for land, building, or both used for commercial purposes. 2% for residential properties. |
| Time of TDS Deduction |
TDS to be deducted at the time of credit of rent to the landlord's account or payment, whichever is earlier. |
TDS to be deducted at the time of credit of rent to the landlord's account or payment, whichever is earlier. |
| TAN Requirement |
TAN (Tax Deduction and Collection Account Number) not required for the deductor. |
TAN is required for the deductor. |
| Form Submission and Compliance |
Form 26QC to be filed for TDS payment and Form 26QD to be furnished to the payee. |
Form 26QC to be filed for TDS payment and Form 26QD to be furnished to the payee. |
| Due Date for TDS Payment |
TDS should be paid within 30 days from the end of the month in which TDS is deducted. |
TDS should be paid within 30 days from the end of the financial year in which TDS is deducted. |
| Interest and Penalty Provisions |
Interest and penalty provisions for non-compliance are applicable. |
Interest and penalty provisions for non-compliance are applicable. |
| Deduction under Other Sections |
No deduction under other sections for the same rental payment. |
Deduction under Section 194C for work contracts, Section 194J for professional or technical services, and others may apply, depending on the nature of the payment. |
A Form 26QC is a challan cum statement. If you have deducted any tax u/s 194-IB, then you are required to deposit such tax through this form. The TDS deducted needs to be deposited within 30 days from the end of the month in which amount was deducted and should accompany Form 26QC.
Now, Form 26QC is generally required to be submitted once, at the end of FY. But there can be some scenarios in which it needs to submit early. These are:
- If you are vacating the property before the year ends, then it is to be submitted in the month when the premise is vacated.
- In case your agreement period contains more than one FY, then you have to submit this form more than once, i.e., at the end of each Financial Year.
Let us understand it even better through an example.
Case I: You have entered into a rent agreement for 11 months from 1/10/17 to 31/8/18. The rent amount is Rs 70,000 p.m. Here, Form 26QC will have to be filed twice, as shown below.
Case II: You have entered in a rent agreement for a period of 6 months from 1/7/2017 to 31/12/2017. Rent amount is Rs 70,000 p.m. Here, Form 26QC will be filed only once.
Now after going through the example, you must be wondering what Form 16C is?
Just like 194-IB made its debut,Form 16C also came into existence. A Form 16C is simply a TDS certificate similar to Form 16 & 16A. This certificate is issued to the landlord by the tenant when TDS u/s 194-IB is deducted. It acts as proof that TDS has been deposited to the government. It is important to note that a person who is deducting TDS needs to issue this form within 15 days from the date of filing of the challan (Form 26QC).
What if you do not comply with provisions?
There are several existing and newly inserted penalties against non-compliance. These are as follows:
| General Provisions: |
| If you don’t deduct TDS, then you may be liable to pay a penalty. |
| Penalty interest @ 1% p.m. can be levied on you, if tax is not deducted. Period of interest will start from date tax needs to be deducted till it is deducted. |
| Penalty interest @ 1.5% p.m. can be levied on you, if tax is deducted but not paid to the government on time. Period of interest will start from the date tax is deducted till it is actually paid. |
| Specific Provisions: |
| ? If you get delayed in filing of Form 26QC, then a penalty of Rs 200 per day may be levied. However, the amount of penalty cannot exceed the amount of TDS. |
| ? In case of late issuance of TDS certificate i.e. Form 16C, then a penalty of Rs 100 per day may be levied. Similarly, the amount of penalty cannot exceed the amount of TDS. |
The provisions of TDS are very vast and complicated to understand unless they are simplified. We hope that after reading our blog, Sec 194-IB is more familiar to you than before. To make it even more understandable, we included an info-graphic differentiating between 194-I & 194-IB. If you are anyhow falling under the provisions of Sec 194-IB, we request you to comply with all the rules and save yourself from any kind of notices, penalty etc.
If you need any further assistance, then you can also get in touch with our eCAs. You can also file your income tax return for free! Visit at Tax2Win and file today. Keep following our blog and social media pages for regular updates.
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