Section 194IC TDS of Income Tax Act - Meaning, Rates and Penalty

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Section 194IC TDS of Income Tax Act - Meaning, Rates and Penalty

The Indian government has introduced various provisions in the Income Tax Act to ensure that income from different sources is subject to tax deduction at source (TDS). One such provision is TDS Section 194IC, which deals with TDS on rent payments made under joint development agreements (JDAs).

This section aims to bring rental income earned through such agreements under the tax net and prevent tax evasion. In this article, we will explore the meaning, rates, and penalties associated with Section 194IC of the Income Tax Act.

Meaning of TDS Section 194IC

Section 194IC of the Income Tax Act requires individuals or entities to deduct TDS on payments made to a resident under a joint development agreement (JDA).

The rationale behind introducing Section 194IC is to ensure that the rental income earned by the property owner through the JDA is subject to tax. By requiring TDS deduction, the government aims to prevent tax evasion and ensure proper reporting of such income.

What is a Joint Development Agreement (JDA)?

The legal contract that binds a property owner and a builder or developer is known as a joint development agreement. Under this agreement, the owner grants the developer the right to construct a real estate project on their land or building.

The developer, in turn, agrees to share a portion of the constructed property or make cash payments to the owner as compensation for the use of their property.

JDAs are common in the real estate industry, as they provide a mutually beneficial arrangement for both parties. Property owners can monetise their assets without investing significant capital, while developers can access land or buildings for their projects without incurring high upfront costs.

Rates of TDS under Section 194IC

The TDS rate on commission under Section 194IC varies based on certain factors:

  • If the rent amount exceeds ₹50,000 and the landlord's Permanent Account Number (PAN) is provided, the TDS rate is 10%.

  • If the landlord's PAN is not provided, the TDS rate is 20% as per Section 206AA of the Income Tax Act.

  • For payments made for the use of machinery or equipment, the TDS rate is 2%.

  • It's important to note that there is no threshold limit or exemption limit under Section 194IC. TDS must be deducted regardless of the amount paid as long as it falls under the purview of a JDA. This means that even small payments made under a JDA are subject to TDS deduction.

Time of Tax Deduction and Payment Mode

The time of deducting tax under Section 194IC is whichever is earlier:

  • The credit of income to the payee's account, or

  • The actual payment made (in cash, cheque, draft, or any other mode).

The payment mode for TDS under Section 194IC is a challan-cum-statement, Form 26QC. The tenant or person making the payment must provide Form 16C to the payee as proof of TDS deduction and deposit. Form 16C acts as a TDS certificate for the payee.

It's important to note that a Tax Deduction Account Number (TAN) is not required to make TDS payments under Section 194IC. This is a unique feature of this section, as TAN is generally required for most other TDS provisions.

Penalties for Non-Compliance

Failure to comply with the provisions of Section 194IC can attract penalties under various sections of the Income Tax Act:

Section 201(1A) - Late Deduction or Late Payment of TDS**

The interest of 1% per month, or a portion thereof, will be applied to the TDS amount if it is not deducted on time, calculated from the date when it should have been deducted until the actual deduction date.

If TDS is deducted but not deposited with the government, interest at 1.5% per month or part thereof will be levied on the TDS amount, calculated from the deduction date until the deposit date.

Section 234E - Late Filing of TDS Returns**

If the tax deductor fails to furnish TDS statements within the prescribed due dates, a penalty of ₹200 per day will be imposed until the failure continues. However, the maximum penalty cannot exceed the amount of TDS for which the return is required to be filed.

Section 271H - Penalty for Failure to Furnish TDS Returns or Providing Inaccurate Information**

If no TDS return has been filed before the due date, or if the deductor provides incorrect information at the time of filing the TDS return, the Assessing Officer can levy a penalty ranging from ₹10,000 to ₹1,00,000.

These penalties underscore the importance of complying with Section 194IC and ensuring timely deduction, deposit, and reporting of TDS. Non-compliance can lead to significant financial implications and legal consequences.

194IC TDS Limit

The time limit for depositing TDS under Section 194IC is as follows:

  • For payments made by or on behalf of the government, the TDS must be deposited on the same day.

  • For payments not made on behalf of the government, the TDS must be deposited within 7 days from the end of the month in which the deduction is made.

  • If the deduction is made in March, the TDS must be deposited by April 30 of the same financial year.

  • Failure to deposit the TDS within the prescribed 194I TDS limit can attract interest and penalties, as mentioned earlier.

Online TDS Payment

To facilitate compliance and ease of payment, the Income Tax Department has provided an online platform for making TDS payments. Follow these steps to make TDS payments online:

  • Visit the official website

  • Choose the applicable challan type (in this case, Form 26QC for Section 194IC).

  • Fill in the required details, such as the PAN of the deductor and deductee, the TDS amount, and the assessment year.

  • Select the payment mode (net banking, debit card, or credit card).

  • Complete the payment process and obtain a challan counterfoil as proof of payment.

Conclusion

Section 194IC of the Income Tax Act is a crucial provision that governs TDS on rent payments made under joint development agreements. It ensures that rental income earned through such agreements is subject to tax and helps in curbing tax evasion.

Understanding the meaning, penalties, and Section 194IC TDS rate is essential for property owners, builders, and developers involved in joint development agreements.

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Related Articles

What is the difference between 194i 194IA and 194iB?

What is the difference between 194i 194IA and 194iB?

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194I deals with TDS on rent, 194IA with TDS on immovable property other than rent, and 194IB with TDS on rent paid for immovable property by certain individuals or HUF.

What is Section 194 C of income tax?

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TDS is addressed under Section 194C with regard to payments given to contractors or subcontractors for doing any work, including labour supply for building projects.

When was 194 IC introduced?

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Section 194IC, dealing with TDS on rent payments under joint development agreements, was introduced in the Finance Act, 2013, with effect from June 1, 2013.

What is 194IA?

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Section 194IA of the Income Tax Act mandates the deduction of tax at source on payments made for the acquisition of immovable property other than rent.

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