In order to streamline tax compliance and bring high-value rent transactions under the ambit of Taxation, the Government of India introduced Section 194-IB under the Income Tax Act, 1961. Effective from 1st June 2017, Section 194-IB applies specifically to individuals and Hindu Undivided Families who are not subject to tax audit under Section 44AB of Income Tax Act, 1961. This section mandates the tenants to deduct TDS at the rate of 5% on monthly rental if the monthly rentals are exceeding ₹50,000.
However, the Central Board of Direct Taxes (CBDT) has recently revised the rate of TDS from 5% to 2% effective from, 1st October 2024, since this change occurs mid-financial year, many tenants are unsure whether to deduct TDS at 5% or 2%, leading to confusion and often resulting in excess TDS deduction. Unfortunately, many tenants continued to deduct TDS at the earlier 5% rate, unaware of the revised rate. If you are a tenant who has deducted TDS at the higher rate, here is everything you need to know about claiming a refund for the over-deducted amount.
What has been Changed?
According to a new rule from the Finance Ministry, starting October 1, 2024, the TDS on rent has been reduced from earlier 5% to 2%.
However, many tenants are still mistakenly deducting 5% from the rent, even though only 2% is required now. The problem is, when this extra 3% is deducted, it doesn’t show up properly in the tenant’s Form 26AS, and landlords only get credit for 2%. The remaining 3% often gets stuck with the tax department, causing confusion and issues for both tenants and landlords.
A Detailed Guide Provided by TRACES
Traces has recognised that the issue is a recurring issue, the TRACES portal (TDS Reconciliation Analysis and Correction Enabling System) has introduced a refund mechanism in respect of such transaction. Tenants who have over-deducted TDS can now initiate a formal refund request directly on traces portal.
TRACES has also started sending official communications from intimations@tdscpc.gov.in with the subject: “Action sought in case of excess TDS amount deposited vide Form 26QC.” An e-tutorial to guide users through the process can be accessed here: TRACES E-Tutorial on PAN Refund for 26QB/26QC/26QD. This tutorial includes a detailed, step-by-step guide explaining how tenants can claim a TDS refund from the Income Tax Department. In the said tutorial following step by step guide have been provided:
Step 1: Go to the TRACES website and log in. The homepage will appear after login.
Step 2: Click on “Request for Refund (For Forms 26QB/26QC/26QD)” under the “Statements / Forms” tab.
Step 3: Before applying, a checklist will appear. Read it carefully and then click “Proceed.”
Step 4: You’ll be asked to select at least one reason for the refund. Choose the appropriate reason, then click “Add Challan” to move forward.
Step 5: Enter the challan (payment) details for which you want to claim the refund.
Step 6: Verify how the tax has been used (challan consumption). Tick “I agree” for the declaration and click “Proceed.”
Step 7: Enter your bank account details where the refund should be credited, then click “Proceed.”
Step 8: A verification page will appear. Review the details and again click “Proceed.”
Step 9: A confirmation page will show up. Click “Submit Refund Request” to continue.
Step 10: A pop-up will appear asking you to verify the request either through DSC (Digital Signature) or Aadhaar OTP. After successful verification, you’ll see a confirmation message. Click on “Preview and Print Form 26B Acknowledgement” to save a copy.
Step 11: To check the status of your request later, go to “Track Refund Request (For Forms 26QB/26QC/26QD)”. You can search using: Search Option 1,Search Option 2 Or click on “View All” to see full details along with remarks.
Documents Typically Required by TDS Officers
Post submission of Form 26B on the Traces Portal, the same is required to be submit at jurisdictional TDS Assessing Officer within 14 days of submission along with written application. To process and approve the refund request, the Assessing Officer may ask for the following documents or details:
- Copy of the rental agreement
- Form 26QC (Challan-cum-statement)
- PAN card of the tenant
- Bank statements showing rent payments and TDS deductions
- A copy of Cancelled cheque
- A notarized indemnity bond on ₹100 stamp paper
- Acknowledgment of Form 26B submission
The Challenges Faced by Tenants
- The TRACES portal or Form 26QC system does not allow direct correction or refund request for excess TDS deposited.
- Refunds are subject to the discretion of the TDS officer, leading to inconsistency.
- The tenant may need to submit a No Objection Certificate (NOC) from the landlord stating they have no claim over the excess TDS.
- The excess TDS remains with the government, blocking funds without interest for the tenant.
- Identifying the correct jurisdictional AO (TDS) and getting a response is often difficult for individual tenants unfamiliar with the Income Tax hierarchy.
Conclusion
The mid-year reduction in the TDS rate on rent from 5% to 2%, effective 1st October 2024, has understandably led to confusion among many tenants. In several cases, TDS continued to be deducted at the earlier 5% rate, resulting in excess payments to the government.
To address this, the Income Tax Department through the TRACES portal has introduced a refund mechanism that enables tenants to claim the excess TDS amount, provided the process is followed correctly. This includes filing a formal refund request, submitting Form 26B, and supporting documents such as the rent agreement, bank details, and a copy of the TDS challan.
While the refund process is well-defined, it requires diligence, timely action, and, in some cases, interaction with the jurisdictional TDS officer. Tenants are encouraged to review their TDS deductions, initiate the refund request if applicable, and ensure compliance with the updated provisions to avoid complications during tax assessments.
Proactive resolution not only ensures recovery of excess funds but also promotes accuracy in tax filings and maintains transparency in tenant-landlord financial arrangements. Staying informed and responding promptly can make the difference between a smooth refund process and prolonged delays.
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Author Bio
Claiming Refund for Excess TDS on Rent Section 194-IB .Tenants had deducted 5% instead of 2% because the period of tenancy by & large start between 01/04/2024 to 30/09/2024. Fearing the imposition of heavy penalties for less payment of TDS , almost all the tenants had decided to deduct & pay the TDS @ 5% only.
According to me instead of asking to claim refund for TDS let the land lord claim the paid tax benefit for the TDS paid for them .
If the refund will be claim by Tenants , the land lords will be planted in big trouble for paying less tax as on the pertax of TDS they might have avoided to pay advance tax for the said financial year . Hence Let us request to H’ble Finance Minister & Chairman of CBDT that give credit of whatever tax paid as TDS to the Land Lord.
PRADEEP JAIN
TAX EXPERT