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Comprehensive Guide to TDS on Rent (Section 194IB & 195)

The Income Tax Act mandates tenants to deduct Tax Deducted at Source (TDS) on rent payments under certain circumstances. This helps collect tax from landlords at the source of income. Here’s a breakdown of TDS on rent under Section 194IB and 195:

Section 194IB:

  • Applies when rent paid to a resident landlord (living in India) exceeds  50,000 per month.
  • The tenant deducts TDS at 5%of the rent. If the landlord doesn’t provide their PAN, the deduction rate increases to 20%.
  • The tenant deposits the deducted TDS using Challan-cum-statement in Form 26QC.
  • The tenant issues a TDS certificate in Form 16Cto the landlord.

Differentiating TDS on Rent Section 194IB vs. 195 of Income Tax Act, 1961

Section 195:

  • Applies when rent is paid to a Non-Resident Indian (NRI) landlord. There’s no minimum threshold for rent amount.
  • The deduction rate depends on the applicable tax rate for NRIs (usually 30% plus Education Cess 4%) or any beneficial tax treaty rate between India and the NRI’s country of residence.
  • The tenant deposits the deducted TDS Monthly as per general TDS Provision and File Quarterly TDS Return using Form 27Q.
  • Under Section 195, the tenant issues a TDS certificate in Form 16Ato the NRI landlord.

Important Points:

  • It’s the tenant’s responsibility to deduct and deposit TDS as per the applicable section.
  • Failure to deduct or deposit TDS can attract penalties.
  • Both tenant and landlord should keep records of rent payments and TDS certificates for tax filing purposes.

Here’s a table outlining the key differences between Section 194IB and Section 195 of the Income Tax Act, 1961, with respect to rent:

Feature

Section 194IB Section 195
Applicability Resident landlord Non-Resident Indian (NRI) landlord
Minimum Rent Threshold Exceeds Rs. 50,000 per month No threshold amount
Tenant Responsibility Deduct TDS if crosses threshold limit Deduct TDS irrespective of tenant’s audit status
Deduction Rate 5% (or 20% if no PAN provided by landlord) Applicable rate (usually 30% + Cess 4%) or treaty rate
Form for TDS Deposit Challan-cum-statement in Form 26QC Quarterly TDS Return (Form 27Q)
TDS certificate Form 16C Form 16A

Conclusion: In summary, Section 194IB and Section 195 of the Income Tax Act delineate distinct TDS obligations for tenants concerning rent payments to resident and non-resident landlords, respectively. Understanding the variances in thresholds, deduction rates, deposit methods, and certificate issuance is imperative for both tenants and landlords to ensure compliance and avoid penalties. By adhering to these provisions, stakeholders can fulfill their tax obligations efficiently and mitigate risks associated with non-compliance.

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Disclaimer:  We request readers to seek professional advice before arriving at any decision/conclusion after reading. We are not responsible for any loss arising to anyone after referring and relying on this article. Above views are based on our understanding of the provisions.

Author can be reached at office.bhavikco@gmail.com

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Greetings to Everyone, I am Practising Chartered Accountant from Thane,Maharashtra, Proprietor of Bhavik Chudasama & Co, Chartered Accountants.Having been in this Industry from 2009 years I expertise in the Field of VAT, Income Tax Return Filing, Tax Audit, Income Tax Scrutiny , Drafting of A View Full Profile

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