What is section 194-IB?
Section 194-IB deals with the provisions relating to TDS deduction on Rent paid by individual / HUF. As per the Finance Act 2017, “TDS on Rent” under section 194-IB is liable to be deducted by Individuals or HUF (other than those covered under section 44AB of the Act), responsible for paying rent to a resident exceeding Rs50,000 for a month or part of a month during the year. Section 194-IB of the Income Tax Act, 1961 states that for all the transactions with effect from June 01, 2017, tax @5% should be deducted by the tenant of the property at the time of making payment of rent to the landlord.
What are the basic provisions of section 194 IB?
As per Section 194-IB of the Income Tax Act, 1961, the tenant is required to deduct TDS, if the following conditions are satisfied –
- The tenant is either an Individual or HUF whose aggregate turnover/total sales/gross receipts from the business or profession doesn’t exceed the monetary limit specified under section 44AB clause (a) or (b).
- In other words, the tenant, being an individual or HUF, is not liable to get their accounts audited.
- The tenant is paying rent to a ‘resident’. Payment to non-resident is not covered under section 194-IB.
- The payment of rent exceeds Rs50,000 per month or part of a month during the previous year.
- In case your landlord has received a certificate from the assessing officer that no deductions must be made on his rental income, you will not have to deduct TDS. This happens in cases where the landlord applies to the assessing officer by filling Form 13 and the official is convinced that full or part exemption is justifiable.
What is the rate & time of tax deduction under section 194-IB?
The rate of the tax deduction is 5% and if the PAN of the recipient is not available, then the rate will be 20%. But, the amount of TDS cannot exceed the amount of rent paid for the last month. Time of tax deduction is earlier of:
- The time of credit of rent (for the last month in the previous year or the last month of the tenancy if the property is vacated before during the year), or
- The time of payment (via cash or cheque or draft or any other mode).
How do you deposit the rent with the government?
The tax deductor is not required to apply for Tax Deduction Number in order to deduct TDS under section 194IB. Central Board of direct taxation (CBDT) has notified form 26QC filling return under this section & this form is PAN based. Form 26QC is the challan-cum-statement for reporting the transactions liable to TDS on rent under section 194-IB of the Income-tax Act, 1961. It is an online form available on the TIN website.
What is the due date of payment of TDS deducted on payment of rent?
The due date of payment of TDS on rent is thirty days from the end of the month in which the deduction is made. This means if a taxpayer has paid rent in the month of December, then corresponding TDS should be deposited on or before thirty days i.e. January 30th. It is also the responsibility of the tenant to issue the landlord a certificate that the payment has been made within 15 days. That is to say, in case the payment is made on Jan 30, you must issue form 16C to your landlord by February 15. Within 3-4 days of making the payment, you will be able to access the Form 16C on
Is there a penalty on failing to comply with the provisions?
- In case you fail to deposit the TDS within the stipulated period, 1% interest of the outstanding will be charged every month as penalty. In case the TDS has been deducted and is deposited with the government but you have failed to issue the certificate to the landlord, 1.5% interest per month has to be paid as penalty.
- Delay in filling Form 26QC would invite a daily penalty of Rs200. In case the form is not filed for a long period, the penalty may go up to Rs1 lakh.
- Delay in issuing Form 16C would invite a daily penalty of Rs100.
- Besides penalty and interest, defaulters can also face imprisonment for a term which shall not be less than 3 months but may extend to 7 years along with fine.
Online Form 26QC is to be filed by each tenant for unique tenant-landlord combination for respective portion. E.g. in case of one tenant and two landlords, two forms have to be filed in and for two tenants and two landlords, four forms have to be filed for respective rent share.
Let us understand with an example
MrA is paying a rent of Rs 60,000/ month. Now as per section 146-IB, he will pay Rs60,000/month, but while making the payment of the rent for March 2019, he is required to deduct TDS @ 5% on the total rent paid for the year FY 2018-19. Let us see how this works out-
|Total rent payable/year||Rs720,000|
|TDS on total rent||Rs36,000|
In the last month, Mr A can pay the landlord Rs60,000-36,000 = Rs24,000. He has to then deposit Rs 36,000 with the income tax department.