The Income Tax Department has released a new brochure explaining Section 194-IB which relates to obligations of a tenant to pay Tax Deducted at Source (TDS) by deducting it from house rent. This exercise needs to be done before making the payment to the landlord and helps the tax department to track house rental incomes. However, the obligation to deduct TDS applies only if the house rental amount is above Rs 50,000 in a month.Read below to know what the Income Tax Department said about TDS on payment of rent.
Section 194-IB: Payment of rent by certain individuals and Hindu Undivided Family
According to the Income Tax Department brochure, the provisions of Section 194IB applies to:
● Any person, being an individual or a HUF responsible for paying to a resident any income by way of rent exceeding Rs 50,000 per month or part of a month.
The Income Tax Department said: “For the purpose 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.”
Rate & time of tax deduction under Section 194 IB
The rate of tax deduction is 2%. with effect from October 1, 2024. However, if the PAN of the recipient is not available then the rate will be 20% as per Section 206AA. Similarly when PAN-Aadhaar is not linked, a higher rate of TDS as per Section 206AA will apply.In 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 tenancy, as the case may be.
Time of deduction of TDS under Section 194-IB
TDS under Section 194-IB is to be deducted 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.
Compliance requirements:
There is no requirement of obtaining TAN for the deductor. She/he can quote PAN/Aadhaar number.
The sum deducted under Section 194IB shall be paid to the credit of the Central Government within a period of thirty days from the end of the month in which the deduction was made and shall be accompanied by a Challan-cum-statement in Form No. 26QC.
TDS certificate is to be issued by the deductor in Form No. 16C by the deductor within 25 days from the due date of furnishing Form 26QC.
Failure to Deduct TDS
Failure to deduct tax under Section 194IB may result in the person i.e. the tenant being deemed to be treated as an assessee in default. Further, failure to deduct tax will attract interest and penalty also.
Assessee-in-default is a person who has failed to fulfil his statutory obligations as per the income tax act such as not paying taxes to the government or not filing his income tax return.
Chartered Accountant Mayank Mohanka, Partner, SM Mohanka & Associates & Founder TaxAaram.com, says: “Failure to deposit the TDS, may trigger proceedings under Section 201(1)/(1A), wherein such an individual may be deemed to be an assessee in default. Consequently, such a person will be required to pay the default TDS amount along with penal interest @2.5% per month for the default period.”
Mohanka shares a possible solution for this problem. He says: “If such person furnishes a certificate of a CA, in Form 26A, as per Rule 31ACB, to the effect that the landlord has duly offered to income tax, such rental income in his return of income and has paid the due tax on such rental income, then such an individual will not be treated as an assessee in default. But, still such person will be required to pay simple interest @1% from the date when such TDS was to be deposited till the date of payment of due tax by the landlord, on such rental income.”
Consequences of non-deduction and deposition of TDS
Mohanka says: “A serious consequence of such non deduction & deposition of TDS on rent, may be initiation of prosecution proceedings under Section 276B, which may result in imprisonment of 3 months and upto even 7 years also, if such individual fails to deduct & deposit the TDS till the due date of filing of quarterly TDS return covering the months for which rent was paid. However, again, if such an individual is able to establish that there was bonafide & reasonable cause for such non deduction of TDS, as per provisions of Section 278AA, then prosecution proceedings can be avoided.”
Steps to fill Form 26QC
Step 1: Visit the NSDL website- www.tin-nsdl.com and then navigate to “Services,” and select TDS on Property (194IA).
Step 2: Select Form 26QC. Under TDS on Property option, choose online form for furnishing TDS on property (Form 26QC).
Step 3: Enter Property Buyer and seller details:
- Buyer’s PAN: Enter the permanent account number (PAN) of the buyer.
- Seller’s PAN: Enter the PAN of the seller.
- Ensure PAN details are correct, as incorrect PAN can lead to a rejection.
Step 4: Provide Property Transaction Details:
- Transaction Date: Date when the sale agreement or property purchase was made.
- Total Consideration: The total value of the property sale.
- Payment type: Choose whether the payment was made in installments or in one go.
- Property type: specify the property type ( e.g. residential, commercial).
Step 5: Payment details: Challan payment mode, bank details.
Step 6: Acknowledgement: After successful payment, an acknowledgement receipt with a challan number (CIN) is generated which you should save or print for further reference.
Form 16C- Tenants will issue this after deducting TDS
According to the Income Tax Department brochure, Form 16C is a TDS certificate issued by a tenant to a landlord for rent payments, under Section 194-IB of the Income Tax Act. The tenant must deduct 5% TDS on rent payments exceeding Rs 50,000 per month. This form is filed after submitting Form 26QC and shows the TDS deducted.
Steps to Fill Form 16C (TDS Certificate for Rent)
Step 1: Ensure Form 26QC is filed:
● Before generating Form 16C, ensure that Form 26QC has been successfully filed by the tenant for deducting TDS on rent.
Step 2: Log in to the TRACES Website at www.tdscpc.gov.in and login with your PAN (used during Form 26QC filing) and password. If you don’t have an account, register using your PAN.
Step 3: Navigate to Download Form 16C:
● Once logged in, go to the Downloads section and select Form 16C (TDS certificate on Rent)
Step 4: Enter acknowledgement number:
● You will need the acknowledgement number from the 26QC challan. Enter the required details such as PAN of the tenant and landlord, financial year, and the acknowledgement number from Form 26QC filing.
Step 5: Verify the details:
● Review the details for accuracy, including the landlord’s and tenant’s PAN, rental amount, TDS deducted, and other related information.
Step 6: Download Form 16C:
● Once the verification is complete, generate Form 16C.
● You can download the PDF format of Form 16C, which will include all the details of the TDS deducted.
Step 7: Provide Form 16C to the landlord:
● After downloading, the tenant must give Form 16C, which will include all the details of the TDS deducted.
Important things to know about TDS on house rent
According to the Income Tax Department brochure here are the details:
- Due date: The tenant should provide Form 16C to the landlord after the TDS is deducted and Form 26QC is filed (usually within 30 days of the TDS deduction).
- Non-TAN requirement: Tenants do not need a TAN (Tax Deduction Accountant Number) to file Form 26QC or issue Form 16C.
- This completes the process of generating and issuing Form 16C for rent TDS.
