Explore the intricacies of TDS (Tax Deducted at Source) on rent payments under the Income-tax Act. Sections 194-IB and 194-I outline the obligations for individuals, HUFs, and other entities. This comprehensive guide covers rates, applicability, exemptions, compliance procedures, and special provisions.
As per section 194-IB of the Income-tax Act (“the Act”), every individual or HUF (other than covered u/s 194-I of the Act) is required to deduct TDS at the rate of 5% on rent exceeding INR 50,000 for a month or part of a month paying to a resident. Rent can be paid for use of any asset including land or building, machinery, furniture, equipment etc.
Further, as per section 194-I of the Act, every person other than Individual or HUF who is paying rent to a resident is required to deduct TDS at the rate of 2% for the use of any machinery or plant or equipment and 10% for use of any land or building (including factory building) or furniture or fittings.
Further, the provisions of section 194-I of the Act are applicable on Individual or HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceeds INR 1 crores in case of business or INR 50 lakhs in case of profession during the financial year immediately preceding the financial year in which such income by way of rent is received. Further, the payer is required to obtain Tax Collection and Deduction Number (TAN), file TDS return in Form 26Q through TDS return utility provided as per the prescribed timelines and issue Form 16A to the payee.
In case rent is paid to a non-resident, then TDS is required to be deducted u/s 195 of the Act read with First Schedule to Finance Act. Rate of TDS will be 30% plus applicable surcharge and cess. Further, the payer is required to obtain TAN, file TDS return in Form 27Q through TDS return utility provided as per the prescribed timelines and issue Form 16A to the payee.
Further, in case the rent payment is covered u/s 194-I or 195 of the Act, the payee can also apply for Lower Tax Withholding Certificate u/s 197 of the Act [LTWC] with jurisdictional Assessing Officer as per PAN online on the TDS Traces portal by providing details of the rent paid and justifying consequent lower rate of tax or no rate of tax on Income from house property is applicable to him as compared to rate specified in section 194-I or section 195 of the Act read with First Schedule to Finance Act. Once LTWC is obtained by payee for the period specified, it will be provided to the payer and payer is required to deduct TDS as per the rate provided in LTWC for the period specified in LTWC.
Further, in case the rent payment is covered u/s 195 of the Act, the payer can also make an application u/s 195(2) of the Act to the jurisdictional Assessing officer as per TAN online on the TDS Traces portal that the whole of such sum of rent would not be income chargeable in the case of the payee.
Further, provisions contained u/s 206AB of the Act relating to special provisions for TDS for non-filers of Income-tax return needs to be kept in mind while determining rate of TDS u/s 194-IA or 194-IB of the Act. Section 206AB is not applicable to a non-resident who does not have a permanent establishment in India or a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and is notified by the Central Government in the Official Gazette in this behalf.
U/s 194-IB of the Act, TDS shall be deducted for the last month of the previous year (i.e., March) or last month of tenancy (if the property was vacated during the year).
As per rule 30 of Income-tax rules, TDS deducted u/s 194-IB of the Act shall be paid to the Government within 30 days from the end of the month in which deductions is made by filing Form 26QC [Challan-cum-statement of deduction of tax under section 194-IB]. There is no requirement to obtain TAN unlike required for deduction and deposit of TDS u/s 194-IA and 195 of the Act.
Form 26QC is required to be filed through login on Income-tax e-filing portal under e-file Tab-e-Pay Tax.
Under Form 26QC, details of payer and payee required to be filled along with period of tenancy, total value of rent paid, value of rent paid in last month, whether TDS is deducted at higher rate as per section 206AB.
Note – Payer refers to the Tenant and payee refers to the Landlord.
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Disclaimer: This article serves an educational purpose and should not be considered as professional advice. Consultation with a qualified individual is recommended before making any decisions based on the content provided. The author bears no responsibility for any actions taken based on this article.
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