Suggestions on Clause 63 of Finance Bill 2017 – Section 194-IB – Requirement of tax deduction at source by individuals/HUFs paying monthly rent exceeding Rs.50,000 – Enabling measures to facilitate ease of compliance to be introduced & issue of clarification regarding the amount on which tax has to be deducted at source in a situation where monthly rent is increased during the previous year and the increased monthly rent exceeds Rs.50,000
The Finance Bill, 2017 proposes to insert new section 194-IB to provide that an Individual or a HUF (other than those covered under clause (a) 85 (b) of section 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.
It is further proposed that tax shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
Issues:
(1) The amount on which tax needs to be deducted in the last month of the previous year would generally be the total rent paid during the previous year. However, in a case when the monthly rent currently does not exceed Rs.50,000 but the same is increased, say, in the month of February and the increased rent amount exceeds Rs.50,000 per month, then it is not clear on what amount the tax needs to be deducted. Whether the tax needs to be deducted on the rent paid during that previous year although the rent per month for some of the months is less than Rs.50,000 p.m or the rent needs to be deducted on the aggregate amount of rent for the months where rent has exceeded Rs.50,000 pm.
(2) Since it is also proposed that the deductor shall be liable to deduct tax only once in a previous year, requisite measures for one time remittance of tax by such deductor may be implemented to facilitate easy compliance.
Suggestions:
It is suggested that:
(i) a suitable clarification be issued clarifying the amount on which tax needs to be deducted under section 194-IB in case the monthly rent has been increased during the year and the amount of rent per month before such increment was less than Rs 50,000.
(ii) a simple challan-cum-statement for one-time remittance of tax by the lessee/ rent payer be notified and a reasonable time period for remittance of rent may be prescribed in Rule 30 in line with sub-rule (2A).
The PAN of the lessor/ landlord and lessee/ tenant may be required to be quoted in the challan so that the lessor/ landlord can take credit of tax deducted and remitted.
The said suggestions are in line with provisions applicable for compliance of provisions of section 194-IA.
Source- ICAI Post-Budget Memoranda-2017
In absence of any clarity ,now the assessee should consider the consolidated rent per year Rs 6lacs or prorate for the period of property on hire or rent to implement this clause. Therefore, any increase in rent exceeding Rs 50 k for a part of the year to be considered if the average rent for the entire period in the specific financial year exceeds Rs 50k