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 under scope “Joint development agreements”.

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. In a joint development agreement, construction and legal work is carried out by the builder and land is provided by the land owner. In such an agreement, 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.

Rate of tax deduction u/s 194IC

As per section 194IC of the income tax act, if the rent payment exceeds Rs.50000 and PAN number of the landlord is provided, TDS of 10% will be applicable w.e.f 01/04/2017. In case PAN number of the landlord is not available, TDS of 20% will be applicable.

Time of tax deduction u/s 194IC

As per provisions under section 194IC of the income tax act, tax must be deducted at the time of crediting/paying the rent income to payee via cash, cheque, demand 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 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 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 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 case of non-deduction of taxes, amount equivalent to the deducted tax may be charged as penalty by the income tax department.
  2. In case there is delay in depositing of tax to the government, 1% penal interest will be charged for delay in deductionand depositing of tax and 1.5% will be charged for delay in depositing tax.
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