Section 194IB of Income Tax Act - TDS on Rent of Property
Section 194IB of Income Tax Act - TDS on Rent of Property
Previously Section 194-I of the Income Tax Act, 1961 covered only those individuals and Hindu Undivided Families (HUFs) liable for a tax audit under Section 44B. It left a significant portion of rent payers uncovered.
The budget of 2017 introduced Section 194IB to broaden the tax base. It brought individuals and HUFs who are not liable for tax audits under the purview of TDS. Keep reading to learn more about Section 194IB of the Income Tax Act in detail.
What is Section 194IB?
Section 194IB of the Income Tax Act, 1961 is related to TDS on rent and was brought to prevent tax evasion on rental income. It says that an individual or a HUF (not covered under Section 194-I) who pays rent exceeding ₹50,000 per month to a resident Indian is liable to deduct income tax at source.
Such individuals or HUF should not be liable for tax audits. The 194IB TDS rate is 5% of the rent if the landlord provides the Permanent Account Number (PAN). A 20% tax should be deducted if the landlord does not have a PAN. However, TDS cannot be more than last month’s rent.
When TDS Should Be Deducted Under Section 194IB?
An individual or HUF is required to deduct the tax on the rental income at the following times:
When the rental income is credited to the account of the property owner. The tenant must deduct the TDS at the time of paying the rent for the last month of the previous year or the last month of the tenancy if he/she vacates the property during the year.
When payment is made in cash or through issue of cheque, draft or other mode.
Example of TDS Deduction under Section 194IB
Now let us consider examples to understand the process of deducting 194IB TDS:
Scenario I: When the tenant occupies the property for an entire year
Ms. Sunita rents a property from April 1, 2023 to March 31, 2024, to Mr. Deepak for a rent of ₹60,000 a month. Since Mr. Deepak pays the rental income to Ms. Sunita, he is liable to deduct the TDS. He must deduct the tax at the end of the year during the credit of the rental income.
Total rent for the year = ₹60,000*12 months = ₹7,20,000
TDS= ₹7,20,000*5% = ₹36,000
Net rent for March= ₹24,000 (60,000-36,000)
Scenario II: When the tenant vacates the property during a year
Now let us assume Ms. Sunita rents the property from October 1, 2023, to March 31, 2024, to Mr. Deepak for a rent of ₹65,000 a month. Since Mr. Deepak pays the rental income to Ms. Sunita, he is liable to deduct the TDS. He must deduct the tax during the last month of his tenancy at the time of credit of the rental income.
Total rent for the year= ₹65,000*6 months= ₹3,90,000
TDS = ₹3,90,000*5%= ₹19,500
Net rent for March= ₹45,500 (65,000-19,500)
Wrapping Up
The tenant is required to deposit the deducted amount of TDS on rent 194-IB within 30 days from the deduction date. For this, Form 26QC must be submitted. Also, a TDS certificate in Form 16C must be provided to the property owner or the payee. Failing to deduct the amount on or before the due date will attract penalties.
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Disclaimer / TnC
Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.
What is the TDS form for Section 194IB?
What is the TDS form for Section 194IB?
Form 26QC is the TDS form for Section 194IB. It is a challan cum return statement. It reports the transactions liable for TDS on rent that must be filed every following month post payment.
What happens if a tenant does not deduct TDS?
If a tenant fails to deduct TDS, a penal interest is charged at the rate of 1% per month on the TDS amount. The interest is applicable from the date on which TDS should have been deducted till the date of actual deduction.
Is TDS on rent paid once a year?
TDS on rent of residential property must be deducted if a tenant pays rent exceeding ₹50,000 per month. He is required to deduct the TDS only in the last month of the financial year or the last month of the tenancy if the property is not occupied for the entire year.
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