What is Section 194IB of the income tax act?

As per section 194IB of the income tax act, it is mandatory for individuals/HUF’s who are not liable for audit under section 44AB must pay TDS on rent (If exceeding Rs.50000) to the income tax department. The main purpose of introducing this act in budget 2017 is to control the tax evasion of landlords. The amount paid to the landlord is only liable for deduction, if the amount exceeds Rs.50000 monthly.

Section 194IB of Income Tax Act: TDS on Rent paid by Individuals or HUF

Meaning of Rent as per section 194IB of the income tax act?

As per section 194IB of the income tax act, rent is a payment made by an individual under tenancy, sub-lease, lease or any other arrangement applicable on the following assets –

  1. Land
  2. Land (including a factory building)
  3. Plant
  4. Building (Including factory building)
  5. Equipment
  6. Machinery
  7. Furniture
  8. Fitting

It is only applicable if the payee is not the owner of the above mentioned assets.

Rate of TDS deduction under section 194IB of the income tax act

As per section 194IB of the income tax act, if the owner is successful in obtaining the PAN card of landlord, the rate of TDS deduction will be 5% whereas in the absence of PAN card of the landlord, it will be 20%.

As per clause 4 of the section 194IB of the income tax act, deduction made should not exceed the rent amount payable by tenant in the last month of the previous year or tenancy.

Time of TDS deduction under section 194IB of the income tax act

As per provisions under section 194IB of the income tax act, individuals/HUF’s needs to deduct TDS on rent within earlier of the following dates –

  1. At the time when rent is credited for the last month of the previous year or tenancy (if tenant vacated the property before the end of the year).
  2. When the payment is made via cash, cheque, demand draft or any other payment mode

Time limit on depositing TDS

  1. When the payment is made on behalf of the government - TDS to be deposited on the same day.
  2. When the payment is made not on behalf of the government - TDS to be deposited within 7 days from the last date of the month in which the deduction is made.
  3. When the payment is made in March - TDS to be deposited before April 30.

Payment due date for TDS on rent

Payment due date for TDS on rent will be 30 days from the end of the month in which the payment of rent is made. For ex – If an individual rent has been deducted in the month of October, he has to deposit TDS on or before 30th November.

Frequency and mode of payment

It is mandatory for every tenant to deduct TDS on rent once every financial year (If he/she is paying rent of more than Rs.50000 per month). A Tenantneeds to submit form 26QC (a Challan cum statement) in order to make this payment. After depositing the tax, tenant needs to provide TDS certificate to the landlord which is considered as an evidence for tax submission. Use of TAN number is not necessary for making the transaction.

Procedure of online TDS payment under section 194IB

  • Visit the official website https://www.tin-nsdl.com
  • Click the option “TDS on rent of property” under services tab and a new page appear over the screen. Click again on “online form for furnishing TDS on property (Form 26QC)”.
  • After clicking the form, a new page appears with the page heading “e-payment of taxes”. Now, you need to fill the following necessary details –
    1. Details of property
    2. Tax deposit details
    3. Date of tax deduction
    4. Amount of tax paid
    5. Tenant details
    6. Landlord details
  • You can pay your tax amount via online immediately or by visiting the nearest branch of your authorised bank.
  • After doing the payment, acknowledgement number is generated and appeared over the screen. You must note down that number for any future reference.

Form 26QC can be downloaded and printed for documentation purpose. You also need to provide Form 16C to the landlord as an evidence for payment of taxes. Later, this form may be used by the landlord at the time of filing his/her taxes.

Penalties for Non-compliance or delay in filing TDS under section 194IB

A Tenant may have to pay penalties in the following cases –

  1. In case of delay in depositing of tax to the government, 1% interest will be charged on delay in deduction and depositing of tax along with 1.5% to be charged for late tax submission.
  2. In case of non-deduction of taxes, amount equivalent to the deducted tax may be charged as penalty by the income tax department.
  3. In case you are failed to submit form 26QC within 30 days from the month end (Month of tax payment), you will be charged a late fee of Rs.100 per day.

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