Form 16C : TDS certificate for rent of property

With a view to widen the scope of TDS applicability on payment of rent, in spite of already existing section 194-I, vide Finance Act, 2017, new section 194-IB had been inserted. Newly inserted section 194-IB of the Income Tax Act, 1961 was made effective from 1^st June, 2017.

The deductor, who is liable to deduct TDS as per provisions of section 194-IB, after deducting TDS, deposits the same to the Government, such deductor is required to issue a certificate to the deductee in Form 16C certifying therein payment of TDS to the Government.

The present article helps the reader in understanding provisions attached with Form 16C along with frequently asked questions (FAQ) relating to the same.

Before understanding Form 16C, it is essential to understand the provisions of section 194-IB, which is explained in the below-mentioned paras.

Applicability of provisions of section 194-IB –

Provisions of section 194-IB of the Income Tax Act, 1961 gets triggered if the following listed conditions are satisfied –

• Provisions of section 194-IB applies to an Individual or a Hindu Undivided Family (HUF) who are not liable to get their accounts audited under section 44AB.
• Such Individual or HUF is paying to a ‘resident’ any income by way of rent.
• The term ‘rent’ means any payment, by whatever name called, under any lease; sub-lease; tenancy or any other agreement / arrangement for the use of any land or building or both.
• Such payment of rent by an individual or HUF to a resident exceeds INR 50,000 per month or part of a month during the previous year.

If all the above conditions are satisfied, the individual / HUF would be liable to deduct tax at source (i.e. TDS).

Rate of deduction of TDS –

If provisions of section 194-IB get attracted, the deductor is liable to deduct TDS @ 5%. However, if the deductee fails to furnish Permanent Account Number (PAN), the deductor would be liable to deduct TDS @ 20%, subject to a maximum of rent payable for the last month or last month of tenancy.

Time of deduction of TDS –

Deductor is liable to deduct TDS at the time earlier of the following –

• At the time of credit of rent, to the account of the payee, for the last month of the previous year or in case the property gets vacated during the year, at the time of last month of a tenancy; or
• At the time of payment in cash or cheque or draft or any other mode.

The requirement of TAN –

As per provisions of section 203A of the Income Tax Act, 1961, every person liable for deducting tax at source is required to obtain ‘Tax deduction and collection Account Number’ i.e. TAN. However, sub-section (3) of section 194-IB clearly provides that provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of section 194-IB.

Concluding thereby that the individual / HUF who is liable to deduct TDS as per provisions of section 194-IB are not compulsorily required to obtain ‘Tax deduction and collection Account Number’ i.e. TAN.

Deposit of TDS to the Government –

Deductor, liable to deduct TDS as per provisions of section 194-IB, is required to deposit the same to the Government within a period of 30 days from the end of the month in which the tax is deducted.

Deductor is required to deposit TDS by filing challan-cum-statement in Form No. 26QC.

Certificate of tax deduction at source in Form 16C –

Rule 31 (3B) of the Income Tax Rules contains the provisions relating to the certificate of tax deduction at source with reference to section 194-IB.

As per the said rule, the deductor is required to furnish the certificate of tax deduction at source in Form 16C within a period of 15 days from the due date of furnishing of challan-cum-statement in Form No. 26QC.

Penalty for delay in issuing Form 16C –

If the deductor has not issued Form 16C, within the due date, in that case he is liable to pay a penalty of INR 100 per day till the failure continues.

Frequently Asked Questions (FAQ) –

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

Provisions of section 194-I are applicable to individual or HUF who are liable to get their accounts audited in the relevant previous year, whereas, provisions of section 194-IB are applicable to individual or HUF who are not liable to get their accounts audited in the relevant previous year.

In the case of section 194-I, the deductor is required to deduct TDS @ 10%, wherein, in the case of section 194-IB, the deductor is required to deduct TDS @ 5%. Further minimum exemption limit in the case of section 194-I is INR 2,40,000 per annum, wherein, in the case of section 194-IB it is INR 50,000 per month.

In the case of section 194-I, TDS is to be deducted and deposited monthly, however, in the case of section 194-IB TDS is to be deducted and deposited once at the end of the financial year or end of a tenancy (where the property is vacated in between).

Under section 194-I, obtaining TAN is mandatory, however, in the case of section 194-IB, TAN is not mandatory.

Who should pay TDS on rent?

The individual / HUF, not liable to get their accounts audited, being a tenant of the property, is liable to deduct and pay TDS to the Government as per provisions of section 194-IB.

How can I deposit TDS on rent?

The deductor, liable to deduct TDS on rent as per provisions of section 194-IB, can deposit TDS by filing challan-cum-statement in Form No. 26QC.

What is the percentage of TDS on rent?

The person is liable to deduct TDS @5% under section 194-IB.

What is Form 16C?

Form 16C is a certificate which is to be issued by the deductor who is liable to deduct TDS on rent as per provisions of section 194-IB.

What is the due date for issuance of Form 16C?

The deductor is required to issue Form 16C to the deductee within a period of 15 days from the due date of furnishing of challan-cum-statement in Form No. 26QC.

What is the penalty if Form 16C is not issued?

The penalty of INR 100 per day, is payable by the deductor, for non-issuance / late issuance of Form 16C, till the failure continues.