Are you a person who’s moved into a plush apartment, condominium or villa warranting to pay a rental amount more than Rs.50,000 per month? Wondering if there is any Income Tax applicability on the same? 

Sections pertaining to the “194” series in the Income Tax Act, 1961 deal with TDS (Tax Deduction at Sources). In the Finance Act 2017 – section 194-IB was inserted. This section deals with the tax deduction on payment of rent by certain persons with effect from 1st June 2017.

Objective

The objective of this article is to provide clarity on the applicability of the section, crystalizing the computation and periodicity of the TDS deduction.

Explanation of section 194-IB

1. When should the TDS be deducted?

Deduction of TDS u/s 194-IB when rent payment exceeding Rs.50,000 (fifty thousand) for a month or part of the month is made.

2. Who should deduct the TDS?

This section is applicable only on the following -

    a. Individual or

    b. Hindu Undivided Family (HUF)

Condition – The above persons should not be required to have Tax Audit u/s 44AB of the Act in the immediately preceding financial year.

If you are an Individual or HUF subject to Tax Audit in the FY preceding the PY, then you are NOT required to deduct TDS u/s 194-IB.

3. What is the rate of TDS that needs to be deducted?

If PAN of the landlord is available, then the TDS rate is 5%.

If PAN of the landlord is NOT available, then the TDS rate is 20%, however, in such a case, the amount of TDS cannot exceed the rent payable for the last month of the PY.

4. When should the TDS be deducted?

The said TDS is supposed to be deducted ONCE in the FY. This can be deducted on the last month of tenancy or last month (March) of the rental in the FY, whichever is earlier.

5. How should the TDS be deducted and deposited?

The TDS should be deposited by the Tenant under Challan-cum-Statement – 26QC – which can be downloaded from www.tin-nsdl.com/ website. TAN registration is not required for the same.

6. Is submitting the challan 26QC enough?

No. Within 15 days from filing the challan 26QC, the payer of rent should submit the details in FORM 16C - obtained from TRACES website. Upon filing the details of FORM 16C the landlord (payee) will automatically get the TDS credit reflected in their Form 26AS.

7. The date for submission of Form 26QC?

Let us understand this with the help of an example. Example – Rental payout per month is – Rs.60,000.

Case 1 – The rental payout should be done for the period of April 2019 – to – March 2020 (period of 12 months).

Total rental payment for 12 months – Rs.7,20,000. (Rs.60,000 x 12 months)

Due Date – Since the last month of rental payment is March 2020, the Challan-cum-Statement of 26QC for Rs.36,000 should be filled before the 30th of April 2020.

Case 2 – The rental payout should be done for the period of April 2019 – to – October 2019 (period of 7 months).

Total rental payment for 7 months – Rs.4,20,000. (Rs.60,000 x 7 months)

Due Date – Since the last month of rental payment is October 2020, the Challan-cum-Statement of 26QC for Rs.21,000 should be filled before the 30th of November 2019.

8. Are there any penal provisions for non-compliance?

   a. If the TDS is not deducted, then – 1% per month will be levied.

   b. If the TDS is deducted but not paid via Form 26QC, then 1.5% per month will be levied.

   c.If the return is filed AFTER the due date, then Rs.100 per day will be charged.

However, the total penalty amount cannot exceed the amount of TDS.

9. Isn’t there another section which deals with this with a limit of Rs.2.4 Lakhs per year?

Well, there is another Section 194-I dealing with TDS rental payment to landlords. Here is a small table explaining the difference between section 194-I and 194-IB

Frequently Asked Questions (FAQs)

The Income Tax Department has provided FAQs to section 194-IB on their website, available in Hindi and English. Request you to kindly go through the link - https://www.tin-nsdl.com/faqs/tds-on-rent-of-property/TDS-FAQ.html for further procedural clarification.

Author

Yash Dhona is the author of this article. He is a Chartered Accountant by qualification and a Senior Wealth Manager at Mitraz Financial Services Pvt. Ltd. The author can be reached at micontact@mitraz.financial.

Disclaimer

The entire contents of this article are solely for information purposes and have been prepared based on relevant provisions and as per the information existing at the time of the preparation.

It doesn’t constitute professional advice or a formal recommendation. The author has undertaken the utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions.

You are kindly requested to verify & confirm the updates, if any, from genuine sources before acting on any of the information provided hereinabove.