1) Who is responsible to deduct tax u/s 194IB?

Any person, being an individual or a Hindu undivided family (not covered under section 194I), responsible for paying to a resident any income by way of rent exceeding ₹ 50,000 for a month or part of a month during the previous year, shall deduct income-tax thereon at the rates in force.

For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

TDS u/s 194IB is also required to be deducted by the person covered u/s 44AD and 44AE whose turnover does not exceeds Rs. 1 Crore or Rs. 50 Lakhs, as the case maybe.

TDS on Rent of Property

2) When to Deduct TDS on rent of property under Section 194IB?

The income-tax referred above 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.

3) Rate of TDS under Section 194IB

Section 194-IB provides that tax at a rate of 5%(3.75% w.e.f. 14.05.2020 to 31.03.2021) should be deducted by the Tenant, Payer or Lessee at the time of making payment of rent to, Lesser, Landlord or Payee.

The tax so deducted has to be deposited to the Government Account through online by any of the authorized bank branches.

The provisions of section 203A relating to requirement of obtaining TAN No. shall not apply to a person required to deduct tax in accordance with the provisions of this section.

In case, the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

4) Other Points

  • Challan-cum-statement in Form no. 26QC will have to be submitted.
  • TDS certificate is to be issued in Form 16C by the person deducting tax within the specified due dates.

 ILLUSTRATION

Mr. Shan, a salaried employee, pays rent of Rs 62,000 per month to Mr. Rehan. Is he required to deduct Tax at source for the financial year 2019-2020?

Mr. Shan pays rent exceeding Rs 50,000 per month in the financial year; therefore he is liable to deduct tax at source @5% of such rent. Thus, Rs 37200 (Rs 62000*5%* 12 months) has to be deducted from rent payable for March, 2020.

  • In above case if Mr. Shan vacated the premises on 30th November 2019, what will be his liability?

If Mr. Shan vacated the premises on 30th November 2019, then tax of Rs 24800 (Rs 62000*5%*8 months) has to be deducted from the rent payable for November 2019.

  • In above case if Mr. Shan vacated the premises on 31st March 2020, but Mr. Rehan did not furnish his PAN, what will be his liability?

If Mr. Rehan does not provide his PAN to Mr. Shan then tax of ₹ 148800  (₹.62000*20%*12months) or rent of that month i.e.62000 whichever is less has to be deducted from the rent payable for March, 2020.

Extract of Section 194IB of Income Tax Act, 1961

194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent of such income as income-tax thereon.

(2) The income-tax referred to in sub-section (1) 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.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Explanation.—For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

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