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?
Section 194IB is related to TDS on rent. As per this section, individuals and HUFs who pays rent exceeding 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. This TDS rate under Section 194IB is 5% of the rent if the landlord provides 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.
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. Under this section, the deductor is not required to have a TAN for deducting TDS
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 |
5% |
| 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. |
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.
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 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).
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. 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. |
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 infographic 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.
What is the difference between Section 194-I and Section IB?
The Income Tax Act mandates Tax Deducted at Source (TDS) on various income payments, including rent. Sections 194-IB and 194-I are two key provisions governing TDS on rent payments. The following table highlights the key differences between these two sections:
| Feature |
Section 194-IB |
Section 194-I |
| Applicability |
Individuals and HUFs paying rent exceeding Rs 50,000 per month |
Any person (excluding specific individuals or HUFs) paying rent exceeding Rs 2,40,000 per year |
| TDS Rate |
2% (as of October 1, 2024) |
10% for land and buildings, 2% for machinery |
| PAN Requirement |
If PAN is not provided, the TDS rate is 20% |
If PAN is not provided, the TDS rate is higher |
| Filing Requirement |
TDS return to be filed by 30th April of the next financial year |
TDS return to be filed by 7th and 30th of the next month |
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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