Latest Update:
The Income Tax Department is issuing notices to tenants paying ₹50,000 or more in monthly rent who haven’t deducted TDS before making payments to their landlords. If you’ve received a notice: (1) If you incorrectly claimed HRA without paying rent, file an updated return immediately to avoid penalties of up to 200%. (2) If you paid rent without deducting TDS, remit TDS with interest and penalties via Form 26QC or submit a CA Certificate from your landlord.
Consult a tax expert to ensure compliance and avoid complications.
What is Section 194IB?
Section 194IB is related to TDS on rent. As per this section, individuals and HUFs who pays rent exceed RS. 50,000 per month to a resident Indian is liable to deduct income tax at source. Such individuals or HUF should not be liable for tax audits u/s 44AB. This TDS rate under Section 194IB is 5% of the rent if the landlord provides a PAN number and the same is 20%, if the landlord doesn’t have a PAN. However, TDS cannot be more than last month’s rent.
Union Budget 2024 has reduced the rate of tax deducted at source (TDS) from 5% to 2% from house rent payments exceeding Rs 50,000. As per provisions of section 194-IB, any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon. It is proposed that TDS under section 194-IB of the Act be reduced from 5% to 2%. The amendment will take effect from 1st day of October 2024.
Failure to comply with this regulation may attract penalties and interest charges. So it is important for landlords to ensure timely deduction and payment of TDS to avoid any legal consequences.
What is Considered as Rent Based on 194 IB TDS?
- Equipment
- Plant
- Fittings
- Machinery
- Furniture
- Land
- Land that includes a factory's building
- The building that is inclusive of a factory building
- The payee may or may not own the assets that are mentioned above.
When TDS Should Be Deducted Under Section 194IB?
TDS needs to be deducted earlier of the:
| Credit / Payment of rent for the last month of the year or the last month of tenancy if the property is left during the year. |
At the time of payment by cash, cheque or any other way. |
Rate of Tax
| Regular rate |
2% |
| If PAN of the Landlord is not available |
20%, but TDS cannot exceed the rent amount of the last month of P.Y or tenancy. |
Who should deduct TDS?
A tenant must deduct TDS from their house rent if the rental amount is Rs 50,000 or more for a month or part of it.
When will a tenant deduct TDS on house rent?
The TDS on house rent must be deducted either at the end of a particular financial year, before making monthly rent payment, the date on which the property is vacated or the rent agreement is terminated with the landlord, whichever is earlier.
Example 1: If a tenant has a rent agreement with a landlord of 11 months from September 2023 to July 2024, then the tenant can either deduct TDS on a monthly basis and deposit the same every month or deduct once from the March’s rental payment. The TDS will be deducted for the rent paid i.e. from September to March 2023.
Example 2: If the tenant is vacating the property in August 2023, then he will be required to deduct TDS before paying rent. ere rent will be deducted from April to August 2023 for 5 months.
Penalty for the Non-Deduction of TDS under Section 194IB
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. The period of interest will start from the date the 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. The period of interest will start from the date tax is deducted till it is actually paid. |
| Specific Provisions: |
| ? If you get delayed in filing Form 26QC, then a penalty of Rs 200 per day may be levied. However, the penalty amount cannot exceed the TDS amount. |
| ? 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 penalty amount of penalty cannot exceed the amount of TDS. |
Online Process for TDS Payment Under Section 194IB
- Step 1: Open your income tax portal and log in.
- Step 2: Select E-file > E-Pay Tax after logging in.
- Step 3: Choose New Payment > 26QC (TDS on Property Rent).
- Step 4: Complete the tenant's information. Add the address and PAN of the landlord. Give information about the rent that has been paid and the TDS deduction. Continue with the tax payment.
- Step 5: Save the payment acknowledgement number for your records when it has been submitted. Form 26QC is available for download and printing for documentation needs. Additionally, remember to give the landlord Form 16C as verification of your tax payment. It can be used by the landlord when he files his taxes.
Difference Between Section 1941 and 1941B
| 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 individuals, HUFs, companies, and others. |
| Type of Income |
Rental income paid for the use of land, buildings, or both for residential purposes. |
Rental income is paid for the use of land, buildings, or both, whether residential or commercial. |
| Threshold Limit |
TDS is to be deducted if the monthly rental payment exceeds Rs. 50,000. |
TDS is 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, buildings, or both used for commercial purposes. 2% for residential properties. |
| Time of TDS Deduction |
TDS is to be deducted at the time of credit of rent to the landlord's account or payment, whichever is earlier. |
TDS is 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) is not required for the deductor. |
TAN is required for the deductor. |
| Form Submission and Compliance |
Form 26QC is to be filed for TDS payment, and Form 26QD is to be furnished to the payee. |
Form 26QC is to be filed for TDS payment, and Form 26QD is 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 194IB, 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 the 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 into a rent agreement for a period of 6 months from 1/7/2017 to 31/12/2017. The 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 194IB 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 194IB 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).
Are you paying ₹50,000 or more in monthly rent? Did you know you must deduct TDS at 2% before paying your landlord? (Effective from October 2024; earlier rate was 5%). The Income Tax Department is actively sending notices to tenants who haven’t complied. Ignoring this can lead to hefty penalties—up to 200% of the tax amount! Our tax experts will ensure you’re fully compliant and avoid future notices. Consult the tax experts today.
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