TDS on Rent – Section 194-IB – Some Practical Issues

Introduction to Section 194-IB:

Section 194-IB has been inserted by Finance Act, 2017 which provides the tax deduction on payment of rent by certain individuals / HUF with effect from 01-06-2017. The provision of section 194-IB are in addition to the existing provision for tax deduction on payment of rent under section 194-I of the Act.

Now many of us might be wondering, why is section 194-IB brought in while section 194-I was already existing in the Income Tax Act, 1961. The answer is “to widen the tax base”. In Section 194-I, only those individuals & HUF were covered, who were liable to get their accounts audited u/s 44AB. This section left a huge portion of rent payers uncovered as not everyone became liable for audit. Therefore, Section 194-IB brought into the picture by Finance Act, 2017.

Extract of Section Section 194IB of Income Tax Act, 1961

‘’194-IB – Payment of rent by certain individuals or Hindu undivided family.

(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.] ‘’

In simple words, according to section 194-IB, if an individual or HUF who is not liable for audit u/s 44AB, is paying rent to a resident exceeding Rs 50,000 for a month or part of a month during the previous year then he will have to deduct TDS at the rate of 5% at the time of making payment of rent to the landlord.

TDS on Rent – Section 194-IB- Practical issues and solutions

Q1: What is the difference between section 194-I and 194-IB?

Answer:

Section 194-I is applicable only if tenant being Individual or HUF who is liable for Tax Audit in previous year and Section 194-IB is applicable only if tenant being Individual or HUF who is not liable for Tax Audit in previous year.

Further the TDS rate applicable is 10% and 5% in case of 194-I and 194-IB respectively.

Also, the minimum exemption limit is Rs. 1,80,000/- per annum for section 194-I and Rs. 50,000/- per month for section 194-IB

Q2: If the Landlord is a non- resident, then whether section 194-IB is applicable?

Answer:

No, if the Landlord is a non- resident, the liability to deduct TDS arises under section 195 of the Income-tax Act, 1961 and not in under section 194-IB. The rate applicable in case of rent will be 30% plus surcharge and education cess as may be applicable. It is important to note here that in case of non-resident there is no minimum amount prescribed for applicability of TDS. TDS has to be deducted irrespective of the quantum of the rent paid.

Q3: If the Tenant is a non- resident, then whether section 194-IB is applicable?

Answer:

This provision shall equally apply to a non-resident tenant if he has taken on rent a property from a resident landlord and paying a rent exceeding Rs 50,000 per month.

Q4: Is it mandatory for tenant to procure TAN to report TDS on rent of Property under section 194-IB?

Answer:

Tenant or Payer of the rent on property is not required to procure Tax Deduction Account Number (TAN). The Tenant is required to quote his or her PAN and PAN of the landlord.

Q5: What is the due date of payment of TDS deducted on payment of rent u/s 194-IB

Answer:

The due date of payment of TDS on rent is thirty days from the end of the month in which the deduction is made.

Example:

If a taxpayer has made payment of rent in the month of June, then corresponding TDS should be deposited on or before thirty days i.e. July 30th.

Q6: What is the periodicity of filing Form 26QC?

Answer:

Deductor should furnish challan-cum-statement in Form 26QC in following scenarios:

• At the end of the FY or in the month when the premise is vacated / termination of 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)

Example 1 (Rent Agreement falling across two FY):

Tenant Mr. P has entered into a tenancy agreement with Landlord Mr. R for the period of 11 months from October 1, 2017 to August 31, 2018 @ rent of Rs. 70,000.

Explanation: In this case, Mr. P should file Form 26QC twice i.e. firstly at the end of the FY 2017-18 (on March 31, 2018) and secondly at the end of the tenancy period (on August 31, 2018).

Example 2 (Rent Agreement falling in same FY):

Tenant Mr. S has entered into a tenancy agreement with Landlord Mr. T for the period of 6 months from June 1, 2017 to November 30, 2017 @ rent of Rs. 90,000 for 6 months

Explanation: In this case, Mr. S will have to file Form 26QC only once i.e. at the end of tenancy period (on November 30, 2017).

Q7: How will transactions of joint parties (having more than one tenant/ landlord) be filed in Form 26QC?

Answer:

Online challan-cum-statement in Form 26QC is to be filed by each tenant for unique tenant-landlord combination for respective share. E.g. in case of one tenant and two landlords, two forms have to be filed in and for two tenants and two landlords, four forms have to be filed for respective rent shares.

Q8: What is a procedure to pay TDS on rent under section 194-IB

Answer:

The deductor of tax has to furnish information regarding the transaction online on the TIN website i.e. www.tin-nsdl.com by uploading Form 26QC (Challan-cum-statement). After successfully uploading Form 26QC, the deductor can:

• Either make the payment online (through e-tax payment option) immediately; Or
• Make the payment subsequently through e-tax payment option (net-banking account) Or
• By visiting any of the authorized Bank branches. However, such bank branches will make e-payment without digitization of any challan. The bank will get the challan details from the online form filled on TIN website(tin-nsdl.com)

Q9: Whether the tenant needs to give any proof of TDS to the landlord?

Answer:

Tenant needs to issue a TDS/ tax paid certificate i.e. (Form 16C) to the landlord as proof of taxes deducted. Form 16C will be available for download from the website of Centralized Processing Cell of TDS i.e. www.tdscpc.gov.in

Q10: If Payee does not provide PAN, what provisions will be applicable in such scenario?

Answer:

In such scenario the tax is required to be deducted as per the provisions of section 206AA (i.e. at the rate of 20%), but 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.

Example:

Mr. A, had taken property on rent from Mr. B, resident, for his residential purpose for the monthly rent of Rs. 1,50,000 w.e.f. 1st July, 2018. Advise Mr. A for deduction of tax under section 194-IB with regard to the time of deduction and the amount, assuming that Mr. B does not provide PAN.

Explanation:

• A shall deduct tax at source annually in the last month of the financial year (i.e. March, 2018) on total rent of Rs. 13,50,000 (i.e. 1,50,000 X 9 months). However, rate of TDS shall be 20% since Mr. B has not provided PAN.
• With regard to amount of TDS, it shall be ideally Rs. 2,70,000 (20% of Rs.13,50,000). But the rent of last month is only Rs. 1,50,000. Therefore, as per section 194-IB, Mr. A shall not exceed tax more than the rent of last month i.e. Rs. 1,50,000.

Q11: What are the penalties for non-compliance?

Answer:

• Implication of Non-deduction:

Interest @ 1 % p.m. of such tax from the date on which such tax was deductible till the date on which such tax is deducted.

• Implication of Non-payment:

Interest @ 1.5% p.m. of such tax from the date on which such tax was deducted till the date on which such tax is actually paid.

• Fees for Late Filing of TDS Return:

Under section 234E, a fee of ₹ 200 per day would be levied for late furnishing of TDS statement from the due date of furnishing of TDS statement to the date of furnishing of TDS statement, maximum up to amount of tax deductible.

• For delay in issuing Form 16C:

The penalty is Rs 100 per day.

The provisions of TDS are very vast and complicated to understand unless they are simplified. I hope that after reading this article Section 194-IB is more familiar to you than before.