Section 194IB of the Income Tax Act governs the tax deducted at source (TDS) on rent payments made by individuals or Hindu Undivided Families (HUFs). This section was introduced to ensure that high-value rent transactions, those above Rs 50,000 per month, are brought under the tax net. This provision applies primarily to individuals who may not be subject to the TDS provisions under the regular rules applicable to businesses or professional entities.
This article provides an overview of Section 194IB, including key definitions, rates of tax, time limits for TDS deductions, and penalties for non-compliance.
Section 194IB of the Income Tax Act mandates the deduction of TDS (Tax Deducted at Source) on rental payments made by individuals or Hindu Undivided Families (HUFs) not subject to tax audits. This provision ensures tax compliance in property rental transactions.
Under this section, tenants must deduct TDS at 5% if the annual rent paid to the landlord exceeds ₹50,000. The deduction is required at the time of crediting the rent to the landlord or during payment, whichever is earlier.
The tenant is not required to obtain a Tax Deduction Account Number (TAN) and can deposit the deducted TDS using Form 26QC within 30 days of the end of the month in which the TDS is deducted.
A TDS certificate, Form 16C, must be issued to the landlord as proof of deduction. This provision applies only to resident landlords, promoting accountability and minimizing tax evasion in rental income.
The term “rent” under Section 194IB includes payments made for the use of the following types of assets:
The law applies to both residential and commercial properties. Importantly, the landlord may or may not own the assets mentioned in the lease, tenancy, or agreement. The key requirement is that payments exceed ₹50,000 per month.
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Section 194IB of the Income Tax Act outlines the obligations of tenants regarding the deduction of Tax Deducted at Source (TDS) on rental payments to ensure tax compliance. Below is a detailed explanation of the requirements for TDS deduction under this section:
The tenant must deduct TDS at the earlier of the following events:
8.1 Calculate TDS: Determine 5% of the total rent for the financial year or the last month of the year.
8.2 Access Form 26QC: Visit the TIN-NSDL portal and fill out the required details in Form 26QC, including:
8.3 Make Payment: Pay the TDS online via net banking or at an authorized bank branch.
8.4. Generate Form 16C: After payment, download Form 16C from the TRACES portal and issue it to the landlord.
Failure to comply with Section 194 IB can lead to:
Penalty Under Section 234E: A fine of ₹200 per day for delay in filing Form 26QC, up to the TDS amount.
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The timelines for paying TDS vary based on how the payment is made:
For rents credited or paid in March, the TDS must be deposited before April 30th. Failure to meet these deadlines may result in penalties and interest.
The TDS rate under Section 194 IB is:
These rates are applicable only if the rent exceeds ₹50,000 per month. If multiple tenants rent the same property, each tenant must deduct TDS if their share of the rent exceeds the ₹50,000 threshold.
Failure to deduct or deposit TDS on rent payments under Section 194 IB can result in interest and penalties. The applicable penalties include:
The government charges interest at 1% per month from the date you were supposed to deduct TDS until the actual deduction date.
The government charges interest at 1.5% per month from the date you deduct TDS to the date you deposit it.
A penalty of ₹200 per day is levied for delays in filing the TDS return (Form 26QC). The total penalty amount cannot exceed the total TDS liability.
While both Section 194I and Section 194IB deal with TDS on rent, they apply to different categories of taxpayers and have unique provisions. Below is a comparison:
| Section 194I | Section 194IB |
| Section 194I applies to anyone who is a resident, including the individual and HUF, who is liable for the tax audit. | Section 194IB applies to resident individuals and HUF who are not liable to tax audits under Section 44AB. |
| Section 194I is deductible at the time of credit of rent or payment in cash or any other mode, which one comes earlier. | The last month to deduct TDS on Section 194IB is in the last month of the financial year or even the last month of the tenancy. |
| The rate of TDS for Section 194I is 10% on the land or building or for both. 10% on the furniture and the fittings. 2% on the machinery or the plant and equipment. | The rate of TDS for Section 194IB is 5% on land and buildings. |
| The monetary limit for Section 194I is the rent of Rs. 2,40,000 for the financial year. | The monetary limit of rent is Rs. 50,000 for a month. |
| TAN is mandatory for this section. | There is no TAN required. |
| The TDS certificate is done through Form 16A. | The TDS certificate is through Form 16C. |
| The TDS return is through Form 26Q. | The TDS return is through Form 26QC. |
Section 194IB of the Income Tax Act ensures that individuals or HUFs bring high-value rental transactions with landlords under the tax net through TDS. While similar to Section 194I, this provision specifically targets individuals or HUFs who are not subject to tax audits but pay rents exceeding Rs 50,000 per month. By enforcing TDS on these transactions, the government aims to streamline tax compliance and bring transparency to rental income declarations.
Properly adhering to the provisions of Section 194IB, including the correct deduction, timely deposit, and filing of TDS returns, can help individuals avoid penalties and interest charges.
Individuals or HUFs who are not subject to tax audits but pay monthly rent exceeding ₹50,000 are required to deduct TDS under Section 194IB.
No, Section 194IB applies only to rent payments made to resident landlords. For non-resident landlords, Section 195 governs TDS.
If the landlord fails to provide their PAN, the TDS rate increases to 20% instead of the usual 5%.
Yes, if excess TDS has been deducted under Section 194IB, you can claim a refund while filing your income tax return.
Form 26QC is a TDS return that must be filed by the individual or HUF responsible for deducting TDS on rent payments under Section 194IB. The form should be filed within the prescribed timelines to avoid penalties.
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