Detailed Analysis of Section 194-IB

Section 194-IB is all about TDS applicability on rent income in the hand of Individual and HUF. Many people got confused between Section 194-I and Section 194-IB. Also many people are unaware about compliance part of this hence today I am writing this all inclusive article on Section 194-IB which will include everything from basic section, its compliance, any correction on traces, obtaining TDS certificate, etc. So, let’s get started!

What is Section 194-IB is all about?

Section 194-IB has been inserted by Finance Act, 2017 which provides the tax deduction on payment of rent by certain individuals / HUF with effect from 01-06-2017. The provision of section 194-IB are in addition to the existing provision for tax deduction on payment of rent under section 194-I of the Act.

Now many of us might be wondering, why is section 194-IB brought in while section 194-I was already existing in the Income Tax Act, 1961. The answer is “to widen the tax base”. In Section 194-I, only those individuals & HUF were covered, who were liable to get their accounts audited u/s 44AB. This section left a huge portion of rent payers uncovered as not everyone became liable for audit. Therefore, Section 194-IB brought into the picture by Finance Act, 2017.

“TDS on Rent” under section 194-IB is liable to be deducted by Individuals or HUFs (Hindu Undivided Family) (other than an individual or a HUF, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid) responsible for paying to a resident monthly rent exceeding ₹ 50,000. Section 194-IB of the Income Tax Act, 1961 states that for all the transactions with effect from June 1, 2017, tax @ 5% should be deducted (depending upon the Date of Payment/Credit to the Landlord) by the Tenant/ Lessee/ Payer of the property at the time of making payment of rent (to Landlord / Lessor/ Payee). Tax so deducted should be deposited to the Government Account through any of the authorized bank branches.

Note: Due to COVID-19, the rate of TDS is reduced upto 3.75% from 14 May, 2020 to 31^st March, 2021

What is the difference between section 194-I and 194-IB?

Section 194-I is applicable only if tenant being Individual or HUF who is liable for Tax Audit in previous year and Section 194-IB is applicable only if tenant being Individual or HUF who is not liable for Tax Audit in previous year.

Further the TDS rate applicable is 10% and 5% in case of 194-I and 194-IB respectively.

Also, the minimum exemption limit is Rs. 1,80,000/- per annum for section 194-I and Rs. 50,000/- per month for section 194-IB

 Steps to fill form 26QC for payment of TDS:

1. Go to TIN NSDL website​ (www.tin-nsdl.com ).​

2. Under ‘TDS on rent of property’, click on “Online form for furnishing TDS on property (Form 26QC)” or click here

3. Select the applicable challan as “TDS on Rent of Property”.

4. Fill the complete form as applicable.

(User should be ready with the following information while filling the form 26QC :

• PAN of the tenant & owner
• Communication details of tenant & owner
• Property details
• Amount paid/credited & tax deposit details

5. Submit the duly filled form to proceed. ​A confirmation screen appears. After confirming, a screen appears showing two buttons as “Print Form 26QC” and “Submit to the bank”. A unique acknowledgement number is also displayed on the screen. It is advisable to save this acknowledgment number for future use.

6. ​​Click on “Print Form 26QC” to print the form if you want to make payment by depositing tax through authorized banks.

or

click on “Submit to the bank” to make the required payment online through internet banking. Then proceed to the payment page through internet banking facility of various banks.

7. For list of authorized banks, please refer https://onlineservices.tin.egov-nsdl.com/etaxnew/Authorizedbanks.html

On successful payment a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment ​being made.

Steps to Download Form 16C:

Step 1: Login to TRACES website with “User ID”, “Password” and the “Verification code”. Landing Page will be displayed on the screen.

Step 2: Click on “Form 16B/16C (For Buyer/ Tenant)” available under “Downloads” tab.

Step 3: Select “Form Type” “Assessment Year” from drop down list enter “Acknowledgement Number” and “PAN of the Landlord”.

Step 4: After clicking on “Proceed” list of challan(s) will be available to download “Form 16C”.

Step 5: “Details to be printed on Form 16C” will reflect as per profile information on “TRACES”. Following details will appear-

• Full Name of Person Responsible for Deduction of Tax
• Father’s Name of Person Responsible for Deduction of Tax
• Designation of Person Responsible for Deduction of Tax

and click “Submit Request” to submit request for “Form 16C”.

Step 6: “Request Number” will be generated after submission of request.

Step 7: In order to track the status of the request click on “Requested Downloads” available under “Downloads” tab. Status of the request can be tracked by the search Options “Request Number”, “Date” or “View All”. “Form 16C” can be downloaded only if the “Submitted” status changes to “Available”.

Step 8: Click on “Available” status row then click on “HTTP Download” tab to download Form 16C Zip file. Enter the password to open Zip file of “Form 16C”.

What is “Default Summary” of Form 26QC and how to extract that?

1. Default summary consists detailed information about the defaults in “26QC Statement Cum Challan” filed by Tenant (taxpayer ) for the particular Acknowledgement, Financial year and PAN of the Landlord.

2. “Default Summary” for 26QC (for TDS on rent on property) can only viewed by “Tenant of the property”.

3. “Default Summary” can be viewed from F.Y. 2017-18 onwards.

4. After clicking on “Proceed” button Tenant can view “Default Summary of 26QC”.

Steps to view “Default Summary”:

Step 1: Login to TRACES website with your “User ID”, “Password” and the “Verification code”.

Step 2: Landing Page will be displayed on the screen.

Step 3: Click on “View Default Summary” available under “Statements / Forms” tab.

Step 4: Select Form Type- 26QC to view “Default Summary”.

Step 5: Select “Financial Year” , “Acknowledgement Number” and “PAN of the Landlord”.

Step 6: After clicking on “Proceed” button Tax Payer can view “Default Summary” for particular “Acknowledgement Number”

How to file correction of Form 26QC?

Step 1 : Login to TRACES website with your “User ID”, “Password” and the “Verification Code”. Landing page will be displayed on Screen.

Step 2 : Select option “ Request for Correction” available under “Statements/ Forms” tab to initiate correction request. Select the Form Type 26QC for correction, on next screen 26QC Correction checklist will appear. After clicking on “Proceed” Pop-Up window will display (If DSC is not registered).

Step 3 : Select “Financial Year” and “Acknowledgement Number” according to filed Form 26QC, then Click on “Request for Correction” button to initiate request for correction. Request number will be generated for correction statement.  User can check the requested Status in “Track Correction Request” option available under “Statements/ Forms” tab.

Step 4 : Go to “ Track Correction Request” option under “Statements/ Forms” tab and initiate correction once the status is “Available”. Click on “Available” status to continue.

Step 5 : Mention CIN details of any one challan paid against 26QC then click on “Proceed” .

Step 6 : After clicking on proceed button details mentioned in 26QC will display on next screen. Select tab accordingly in which user want to do edit details. Click on “Edit” button. Pop up will be shown on the screen. Click on “Save” to save updated details then click on “Submit Correction”.

Step 7 : Screen will display to “Confirm the Details” after Submission of Correction Statement (Updated details will be highlighted in Yellow Colour).

Step 8 : Profile details will be populated as updated on TRACES profile. Click on “Submit Request” to submit correction request.

Step 9 : After submission of Correction Request if DSC is not registered user gets the option to validate correction through E-Verified (Internet Banking) or AO Approval OR if DSC is registered user gets the option to validate correction through E-Verified (Internet Banking), AO Approval or DSC.

NOTE :

• After submitting the Correction, a Correction ID will be generated through which status of correction can be tracked.
• For Assessing Officer approval Tenant has to submit 26QC Correction acknowledgement with Rented property related documents (e.g. Agreement Copy of rented property),Proofs of payment made through Challan for 26QC, PAN Card etc. to Jurisdictional Assessing Officer within 14 days from the date of transmitting the data electronically. Otherwise, it will lead to rejection of correction statement.

OR

With “E-Verified (Internet Banking) Service” user can submit 26QC Correction statement without approval from Assessing Officer and without using DSC. (E-Verified Service option is not available for NRI Taxpayers (www.nriservices.tdscpc.gov.in) website ).

What are the Consequences for Non-Compliance with Section 194-IB?

Interest on Late Deposit of TDS on Property –

In case the TDS has not been deducted, the buyer would be required to pay 1% interest per month on the amount not deducted. In case, the TDS has been deducted but has not been paid, Interest @ 1.5% per month would be applicable in such a case.

Penalty for Late Deposit of TDS on Property –

The Income Tax Officer may also levy a penalty of upto Rs. 1 Lakhs for Late Deposit of TDS on Property.

Penalty for Late Filing of Form 26QC: 

In case of late filing of TDS Return, a penalty of Rs. 200 per day would be levied. However, the Penalty should not exceed the amount of TDS for which this Form has not been filed.

Some Practical Issues and its solutions

Q.1: If the Landlord is a non- resident, then whether section 194-IB is applicable?

Answer:

No, if the Landlord is a non- resident, the liability to deduct TDS arises under section 195 of the Income-tax Act, 1961 and not in under section 194-IB. The rate applicable in case of rent will be 30% plus surcharge and education cess as may be applicable. It is important to note here that in case of non-resident there is no minimum amount prescribed for applicability of TDS. TDS has to be deducted irrespective of the quantum of the rent paid.

Q2: If the Tenant is a non- resident, then whether section 194-IB is applicable?

Answer:

This provision shall equally apply to a non-resident tenant if he has taken on rent a property from a resident landlord and paying a rent exceeding Rs 50,000 per month.

Q3: What is the periodicity of filing Form 26QC?

Answer:

Deductor 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 vacated / termination of 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 has been paid/credited during the year)
• In the month when the premise is vacated/ termination of agreement (in case the agreement period falls in the same FY)

Example 1 (Rent Agreement falling across two FY):

Tenant Mr. P has entered into a tenancy agreement with Landlord Mr. R for the period of 11 months from October 1, 2017 to August 31, 2018 @ rent of Rs. 70,000.

Explanation: In this case, Mr. P 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).

Example 2 (Rent Agreement falling in same FY):

Tenant Mr. S has entered into a tenancy agreement with Landlord Mr. T for the period of 6 months from June 1, 2017 to November 30, 2017 @ rent of Rs. 90,000 for 6 months

Explanation: In this case, Mr. S will have to file Form 26QC only once i.e. at the end of tenancy period (on November 30, 2017).

Q4: How will transactions of joint parties (having more than one tenant/ landlord) be filed in Form 26QC?

Answer:

Online challan-cum-statement in Form 26QC is to be filed by each tenant for unique tenant-landlord combination for respective share. E.g. in case of one tenant and two landlords, two forms have to be filed in and for two tenants and two landlords, four forms have to be filed for respective rent shares.