What is Section 194IC of the Income Tax Act?

Any person who is paying rent to a land owner (owner of land or building or both) under the joint development agreement needs to deduct TDS under section 194IC of the income tax act. The main aim of introducing section 194IC in the budget 2017 was to bring “Joint development agreements” under the scope.

Section 194IC of Income Tax Act: TDS on Payment under Joint Development

Meaning of Joint development agreement

A Joint development agreement is the registered agreement between an asset owner and a real estate developer for the construction of new projects.  The builder carries construction and legal work in a joint development agreement, and the landowner provides land. In such an agreement, the asset owner allows the other person to construct a real estate project on such asset in exchange for cash payments or/and share in that project.

Frequency and Mode of TDS payment

Tenants are required to deduct and pay the tax to the government once a year. This payment should be made using a challan-cum-statement, Form 26QC. Additionally, the tenant must give the landlord with Form 16C a TDS certificate to verify the tax deposited. The transaction does not require a tax deduction account number (TAN).

Rate of tax deduction u/s 194IC

As per section 194IC of the income tax act, if the rent payment exceeds Rs.50000 and the PAN number of the landlord is provided, TDS of 10% (7.5% w.e.f 14.05.20 to 31.03.2021). In case the PAN number of the landlord is not available, a TDS of 20% will be applicable.

Time of tax deduction u/s 194IC

As per provisions under section 194IC of the income tax act, the tax must be deducted at the time of crediting/paying the rent income to the payee via cash, cheque or draft or any other payment mode. TDS rates for deduction are as follows –

  1. Rent for Plant/Machinery/Equipment – TDS@1.5% onpayment of the rent amount.
  2. Rent for Land/Building/Furniture/Fittings – TDS@7.5% on payment of the rent amount.
  3. Individual/HUF not liable to tax audit – TDS@3.75% on payment of rent amount in case when rent payment exceeds Rs.50000 per month.

Time limit on depositing TDS

  1. When the payment is made by or on behalf of the government – TDS is to be deposited on the same day (without the use of challan form).
  2. When the payment is not made on behalf of the government – TDS is to be deposited within 7 days from the end of the month in which deduction is made.
  3. When the amount is credited/paid in March – TDS is to be deposited before 30th April.

Penalties for non-deduction/non-payment of TDS under section 194IC

A person may need to pay penalties in the following cases –

  1. In the case of non-deduction of taxes, an amount equivalent to the deducted tax may be charged as a penalty by the income tax department.
  2. In case there is a delay in depositing tax to the government, 1% penal interest will be charged for delay in deduction and depositing of tax, and 1.5% will be charged for delay in depositing tax.
  3. Failure to file Form 26QC within 30 days of the end of the month in which tax is paid would result in a Rs 200 per day late fee.

Under what circumstances TDS u/s 194IC is not deductible?

Tax deduction at source shall not be allowed on any portion of the consideration received in-kind under the specified agreement.

When Should TDS Be Deducted Under Section 194IC?

The Tax shall be deducted under this section at the time of credit to the payee's account or at the time of payment, whichever occurs first. Payment may be made in cash, by cheque or draft, or by any other method.

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