TDS on rent paid in India & rent paid to a Non-resident in India

Earlier, Rent paid in India was covered under section 194-I which covered Individuals and HUF who are liable to get their accounts audited under the Income-tax Act. This section left a huge portion of rent prayers uncovered as not everyone became liable for Audit. To cover this portion, A new section 194-IB was inserted through a Finance Act 2017. This article will cover section 194-IB, rent paid to non-residents and commonly asked questions.

1. Rent under section 194-IB-Payment of rent by certain individuals or Hindu undivided family to a resident

As section 194-IB, any individual or HUF paying any income by way of rent exceeding Rs. 50,000 for a month or part of a month during the previous years, shall deduct TDS at the rate of 5% on such income.

Section 194-I covered those Individuals and HUF who were liable to get their accounts audited under section 44AB i.e Tax Audit under the Income-tax Act. Whereas, section 194-IB covers individuals and HUF who are not liable for the Tax Audit.

TDS has to be deducted at the time of credit of the rent 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 mode, whichever is earlier.

– How will transactions of joint parties (having more than one tenant/ landlord) be filed in Form 26QC?

Online challan-cum-statement in Form 26QC is to be filed by each tenant for unique tenant-landlord combination for respective share.

– Is TAN mandatory for TDS on rent of property under section 194-IB?

Provisions related to allotment of TAN is dealt with section 203A of the Income-tax Act. Section 194-IB has specifically provided that TAN is not mandatory. Tenant is required to quote his or her PAN and PAN of landlord.

– What is the due date of depositing TDS?

The TDS deducted should be paid within 30 days from the end of the month in which the tax was deducted. It shall be accompanied by a challan (cum) statement in Form 26QC.

Form 16C is a new TDS certificate introduced by the government of India. It reflects the amount of TDS deducted on rent @ 5 % by the individual/HUF (u/s 194IB). Deductor should issue Form 16C to deductee.

– What is the periodicity of filing form 26QC?

At the end of the Financial Year (FY) or in the month when the premise is vacated / termination of agreement. However, taxpayer has to mandatorily file the Form at the end of each Financial Year (in case the agreement period contains more than one FY and rent has been paid/credited during the year).

In the month when the premise is vacated/ termination of agreement (in case the agreement period falls in the same FY).

– How to pay taxes and select challan?

The tenant of the property has to furnish information regarding the transaction, online on the TIN website i.e www.tin-nsdl.com after successfully providing all the information.

1) Go to NSDL e-GOV website ( www.tin-nsdl.com )

2) Select TDS on Rent of Property.

3) Click on the option: “Online form for furnishing TDS on Rent (Form 26QC)”.

4) Select Form 26QC (Payment of TDS on Rent of Property)

2.  Rent paid to a Non-resident

If the landlord is a Non-resident, the liability to deduct tax arises under section 195 of the Income-tax Act. The rate applicable in this case will be 30% plus surcharge and education cess i.e 31.2%.

It is important to note here that in case of non-residents there is no minimum amount prescribed for applicability of TDS. TDS has to be deducted irrespective of the quantum of amount. NRI can ask for lower deduction or no deduction certificate provided his total income in India is below exemption limit. The rent proceeds will have to be credited to NRO account of NRI.

Upon payment, the tenant must fill form 15CA and submit it online. If annual payment of rent is above Rs.5,00,000, then tenant needs to obtain Form 15CB from a Chartered Accountant.

Form 15CA is required to be filled by the payer when he is making a payment outside India to a non-residents or to a foreign company. Form 15CA will not be required by an Individual for remittance, which does not require RBI Approval.

– Is TAN mandatory for TDS on rent paid to Non-resident?

Provisions related to allotment of TAN is dealt with section 203A of the Income-tax Act. As nothing is specifically covered, is is Mandatory to obtain TAN in this case.

– What is the due date of depositing TDS?

Section 192 – 195 of the act lay down various payments on which the payer has to deduct TDS. Thus, the TDS deducted by the payer (a non – government payer) is to be paid to the government in the following way:

1) TDS deducted during the months of April – February should be paid to the government on or before 7 days from the end of the month in which TDS is deducted.

2) The TDS deducted during the month of March needs to be paid to the government on or before 30th day of April.

– What is the periodicity of filing form 27Q?

Form 27Q is a statement for TDS from Additional Income like Interest, Dividends, or any other amount Payable to NRI (Foreigners). Form 27Q is relevant for payments made except the salary to non-resident Indians and foreigners. It is used for the declaration of TDS for the NRIs and Foreigners.

– What are the contents of Form 27Q?

1) TAN number

2) PAN

3) Financial year for which return is to be filed

4) Details of the deductor: Name, TAN and address

5) Details of the deductee: Name, PAN and Address

6) Details of the tax paid to the government along with the details of Challan

7) Verification of statement signed by the Deductor

– What are the consequences of not deducting and filing of return?

Penalty under section 271C of the Income-tax Act a sum equal to the amount of tax which such person failed to deduct or pay.

Penalty under section 271H of the Income-tax Act being a sum not less than Rs. 10,000 but which may extend to Rs.1,00,000 will be levied if the person fails to file the return within the due date prescribed or furnishes incorrect information.

Interest for failure to deduct the tax or after deducting delay in payment of such TDS will also be levied under section 201 of the Act at the simple interest rate 1-1.5% every month or part of the month.

Late fees under section 234(E) for delayed filing of return of Rs.200 per day during which default continues but it cannot exceed the amount of TDS will be charged.