In the Union Budget 2017, A new section has been inserted Section 194IB TDS on Rent of Property. The main purpose of introducing this section is to include the people which were earlier exempted in Section 194I i.e Individuals and HUF who were not covered under audit. Let’s read about it in detail.
What is TDS on Rent u/s 194IB?
As per section 194IB of the Income Tax Act, if the tenant of the property is an individual/ HUF (not liable to tax audit under the income tax act) has to deduct and deposit TDS if the amount of rent paid exceeds INR 50,000 for a month or part of the month.
Rate of TDS u/s 194IB
TDS is required to be deducted at the rate of 5% from the rent payable to the resident’s landlord. If the PAN of the landlord is not available then the rate of TDS will be 20%. However, the tenant is not required to obtain TAN for TDS deduction on rental payments.
Let’s understand this with the help of a Table:
|Rate of TDS u/s 194IB
|If the PAN of the landlord is available
|If the PAN of the landlord is not available
Note: As per section 206AA if the deductee fails to provide the PAN to the deductor then the rate of TDS will be 20%. But there is an amendment in the Finance Act 2021 with respect to Section 194IB which states that even if the PAN of the landlord is not available the deduction of tax shall not exceed the amount of the rent payable for the last month of the previous year or the last month of the tenancy.
EXAMPLE: Mr. Ram is paying an annual rent of INR 1,00,000 p.m. to Mr. Shyam. In this case, at the end of the financial year, Ram will deduct TDS on rent paid for the whole financial year. But Shyam has not furnished his PAN so Ram will deduct TDS at 20%. Accordingly, TDS should be INR 2,40,000 (INR 12,00,000*20%). But as per the above note, it should not exceed the last month’s rent i.e INR 1,00,000.
When to deduct and deposit TDS on the rent of the property?
- The tenant is required to deduct tax from the total annual rent which is paid to the landlord. It is to be deducted once in the financial year at the end of the year or in the month in which the property is vacated/the rental agreement is terminated.
- Tax needs to be deposited within 30 days from the last date of the financial year or from the date of termination of the agreement in Form 26QC.
Let’s take an example:
Mr. Sudhir entered into a tenancy agreement with Mr. John for FY 2021-22 for the period of 6 months from October 2021 till 31st March 2022 at the monthly rent of Rs. 65,000. The following is the tax deduction amount and date of deposit of TDS:
|At the end of the FY 2021-22
|Period of Tenancy
|Total Value of Rent Payable
|Value of Rent Paid in Last Month
|Amount Paid/ Credited
|Date of Payment/ Credit
|31st March 2022
|Date of deduction of TDS
|31st March 2022
|Due date of deposit of TDS and filing of Form 26QC
|On or before 30th April 2022
Penalties for non-deduction of tax and delay in the deposit of tax
- In case of non-deduction of tax, an interest penalty of 1% per month is applicable from the date on which tax was deductible to the date on which such tax is deducted.
- Likewise, In case of non-payment of TDS after deduction of TDS, an interest penalty of 1.5% per month is applicable from the date on which tax was deducted to the date on which tax is actually deposited.
The tenant/deductor liable to deduct tax under Section 194IB of the Income tax Act shall file Form 26QC within 30 days from the last date of the financial year or from the date of termination of the agreement. The deductor can file Form 26QC through NSDL.
If the tenant of the property is an individual or a HUF (not liable to audit u/s 44AB) would have to deduct the TDS as well as deposit the same in the Government treasury.
Form 16C is the TDS certificate to be issued by the deductor (Tenant of property) to the deductee (Landlord of property) in respect of the tax deducted under section 194IB of the Income-tax Act, 1961.
The tax deductor is not required to apply for TAN in order to deduct TDS U/S 194IB. CBDT has notified form 26QC filling return under this section & this form is PAN-based.