TDS on Rent - Section 194IB: Rent paid by Individual and/or HUFs

In this post, we have discussed about the TDS on rent – Section 194IB: paid by Individual and/or HUFs.

The new Section 194-IB requires individuals to deduct TDS on rent paid for residential apartments and flats

The scope of TDS on rent has been extended to rent paid for flats and apartments rented by individual taxpayers, with effect from June 1st, 2017. The TDS liability on rent paid on commercial premises and non-individual entities like companies, firms, and partnerships remain unchanged.

For an individual/HUF paying rent of more than Rs 50,000 per month, it is now necessary to deduct tax at source. The government introduced section 194IB in the Income-tax Act making it mandatory for a tenant to withhold taxes. Thus, if rental payment is Rs. 50,000 or above per month, then 5% TDS has to be withheld by the  Individual/HUF. The deductor has to then deposit the amount within the prescribed time.

In the absence of PAN of the landlord or failure to provide the same, the tax deduction will be at the rate of 20%.

In such situation, the overall tax shall be in restriction to the rent payable for the last month of the financial year or tenancy whichever is earlier.

TDS Rates on Rent u/s 194-I and 194-IB

Type of Rent TDS Rate Section of IT Act Explanation
Rent paid towards commercial/ industrial premises 10% 194-I (TDS)Tax to be deducted and deposited monthly
Rent paid towards residential premises leased by non-individual entities like companies 10% 194-I Deduction of tax and deposit monthly
Rent paid towards residential premises leased by salaried and self-employed individuals 5% 194-IB Tax to be deducted and deposited once at end of financial year or end of lease; TAN not required

The government has tried to keep the process as simple as possible and reduce the complexity of tax structure. The simplicity of the process is:

1. TDS deduction only once per annum

The tenant is necessary to deduct and deposit the taxes only once in a financial year, through a challan-cum-statement (Form 26QC). However, where the property is vacated during the year, the tax deduction should be possible on the last day of the tenancy.

2. Easy accessibility of TDS certificate, challans, forms

The tenant is also necessary to issue a tax withholding certificate (Form 16C) to the landlord, as a proof that taxes have been deposited in his name.

3. Tenants do not need TAN

Also, the lawmakers have done away with the requirement to obtain a tax deduction account number (TAN) for such transactions.

Submission of Challan-cum-Statement 26QC for Payment of TDS:

TDS deducted should be paid within 30 days from the end of the month in which the tax is deducted. It shall be accompanied by a challan (cum) statement in Form 26QC. The payment of TDS amount can through the government electronically through Reserve Bank of India, State Bank of India, or any authorized bank.

The periodicity of filing Form 26QC:

According to rule, Taxpayer/Tenant should furnish challan-cum-statement in Form 26QC in following scenarios:-

  • At the end of the FY or in the month when the premise is vacating / termination of the agreement. However, taxpayer has to mandatorily file the form at the end of each Financial Year (in case the agreement period contains more than one FY and rent paid/credited during the year)
  • In the month when the premise is vacating/ termination of agreement ( if the agreement period falls in the same FY)

Example 1 (Rent Agreement falling across two FY):- A Tenant Mr. A has entered into a tenancy agreement with Landlord Mr. X for the period of 11 months from October 1, 2017, to August 31, 2018, @ rent of Rs. 60,000.

Explanation: – In this case, Mr. A should file Form 26QC twice i.e. firstly at the end of the FY 2017-18 (on March 31, 2018) and secondly at the end of the tenancy period (on August 31, 2018). Below fields capture the following values:

Details At the end of FY (1st Return) At the end of tenancy (2nd return)
FY 2017-18 2018-19
Period of Tenancy 6 Months 5 Months
Total Rent Payable 360,000 <300,000
Rent paid in last month 60,000 60,000
Amount Paid/ Credited 360,000 300,000
TDS made 18,000 15,000
Date of Payment/ Credit 31st Mar 2018 31st Aug 2018
Date of TDS Deduction 31st Mar 2018 31st Aug 2018
Due date for payment & filing of Form 26QC On or before 30th Apr 2018 On or before 30th Sept 2018
Due date to furnish Form 16C to Landlord On or before 15th May 2018 On or before 15th Oct 2018

Example 2 (Rent Agreement falling in same FY):- Tenant Mr. B has entered into a tenancy agreement with Landlord Mr. Y for the period of 6 months from June 1, 2017, to November 30, 2017, @ rent of Rs. 80,000 for 6 months

Explanation: – In this case, Mr. B will have to file Form 26QC only once i.e. at the end of the tenancy period (on November 30, 2017). Below fields capture the following values:

Details At the end of tenancy
FY 2017 – 18
Period of Tenancy 6 months
Total Rent Payable 480,000
Rent paid in last month 80,000
Amount Paid/ Credited 480,000
TDS made 24,000
Date of Payment/ Credit 30th Nov 2017
Date of TDS Deduction 30th Nov 2017
Due date for payment & filing of Form 26QC On or before 30th Dec 2017
Due date to furnish Form 16C to Landlord On or before 15th Jan 2018

Furnishing Form 16C as Certificate of TDS Deduction to Payee

The government of India introduced a new TDS certificate Form 16C. It reflects the amount of TDS deducted on rent @ 5 % by the individual/HUF (u/s 194IB). Tenant needs to issue a TDS/ tax paid certificate (Form 16C) to the landlord as proof of taxes deducted.

It is same as Form 16 or Form 16A issued in the case of salary and other payments respectively. The person deducting the TDS on the rent is necessary to furnish Form 16C to the payee within 15 days from the due date of furnishing challan cum statement in Form 26QC. The issuance should be within 45 days from the end of the month in which the tax deducted at source.

There are interest and penalties prescribed for non- compliance with the newly-inserted law. Therefore, if a tenant fails to deduct tax at source he may be liable to pay interest and penalties as prescribed under the law.

A penalty for non-deduction of tax or delay in deposit of taxes withheld:

• For, non-deduction of tax, the tenant may be necessary to pay a penalty equal to the amount of taxes withheld.

• If the tenant delays in the deposit of taxes withheld, he may be liable to pay penal interest at the rate of 1% where there is a delay in deducting and depositing the tax or 1.5% per month where there is tax deduction but there is a delay in depositing the same.

The penalty for delay in filing of Form 26QC and issuing Form 16C:

  • Delay in the filing of Form 26QC may attract a late fee of Rs. 200 per day.
  • Also, there may be consequential penalties for non-filing.
  • For delay in issuing Form 16C, the penalty is Rs. 100 per day.

The government’s objective to ensure that correct income is disclosed and both, tenant and landlord file their income tax returns. With the quoting of the PAN for both landlord and the tenant, the Revenue Department can easily track correct disclosures of rent in tax returns. Also, such taxes are likely to reflect in form 26AS of the landlord for claiming the credit of the TDS.

This completes our post if you have any queries or doubts kindly drop them in the comment section below.

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