The Finance Act, 2017 introduced Section 194IB, which mandates the deduction of tax at source (TDS) on rent paid by certain classes of taxpayers. This provision specifically applies to Individuals and Hindu Undivided Families (HUFs) making rental payments above a specified threshold. In this blog, we’ll discuss everything you need to know about Section 194IB, including its applicability, TDS rates, deposit timelines, and more.
1. Applicability of Section 194IB
Section 194IB applies to Individuals and HUFs who:
- Pay rent exceeding Rs. 50,000 per month to a resident.
- The rent can be related to various types of property, including land, buildings, machinery, furniture, equipment, plants, and fittings.
This provision ensures that certain taxpayers who make significant rental payments are required to deduct TDS, streamlining tax compliance for landlords and tenants.
2. Point of Deduction: When Should TDS be Deducted?
TDS must be deducted either at the time of crediting the rent amount to the landlord’s account or at the time of payment, whichever happens first. The timing of deduction is crucial, as failing to deduct TDS at the right moment may attract penalties and interest charges.
3. TDS Rate Under Section 194IB
The TDS rate under Section 194IB depends on whether the PAN (Permanent Account Number) of the recipient (the landlord) is available:
- 5% TDS: If the landlord’s PAN is provided.
- 20% TDS: If the landlord does not provide a PAN.
It is important for the tenant (the deductor) to request the landlord’s PAN to apply the lower TDS rate.
4. Time Limit for Depositing TDS
Once the TDS is deducted, it must be deposited with the government within the following timelines:
- For Rent paid from April to February: The TDS should be deposited by the 7th of the next month.
- For Rent paid in March: The TDS can be deposited up to 30th April.
This ensures that the TDS is accounted for in the financial year it is deducted.
5. Filing of TDS Return: Form 26QC
For tenants (deductors) paying rent under Section 194IB, the TDS payment must be reported using Form 26QC. This form serves both as a challan and a statement of TDS deduction. The form must be filed online, and both the PAN of the deductor and the deductee (landlord) should be mentioned in the form.
Unlike other TDS provisions, there is no requirement to file a separate TDS return for rent paid under Section 194IB. The payment and filing through Form 26QC suffice.
Form 26QC is available on the NSDL website (www.tin-nsdl.com) for easy access and submission.
6. Issuance of TDS Certificate: Form 16C
After filing Form 26QC, the tenant is required to issue a TDS certificate in Form 16C to the landlord. This certificate must be provided within 15 days from the due date of filing Form 26QC. Landlords can download Form 16C from the official website (www.tdscpc.com) after the form is filed.
The TDS certificate serves as proof of the tax deducted and deposited, ensuring that the landlord can claim credit for the tax deducted.
7. Interest and Penalties for Non-Compliance
There are penalties for delays in deduction or deposit of TDS:
- Late Deduction: If TDS is not deducted on time, interest at the rate of 1% per month is applicable.
- Late Deposit: If TDS is not deposited on time, interest at the rate of 1.5% per month is applicable.
- Late Filing of Form 26QC: If the form is not filed within the prescribed timeline, a late fee of Rs. 200 per day of delay is levied.
These penalties highlight the importance of timely TDS deduction, deposit, and filing.
8. Key Points to Remember
- No TAN Required: Unlike other TDS provisions, no TAN (Tax Deduction Account Number) is required for deduction under Section 194IB. Only the PAN of the tenant and landlord is needed.
- Applicable Only to Individual and HUF Deductors: This section is specifically for Individual and HUF deductors who are not liable for audit under Section 44AB of the Income Tax Act. For other deductors, Section 194I applies.
- Residential Rent is Covered: Rent paid for residential property exceeding Rs. 50,000 per month is also subject to TDS under Section 194IB.
- GST Exemption: TDS is not applicable on the GST component of the rent. TDS is only applicable on the base rent amount.
Conclusion
Section 194IB is a significant provision for individual and HUF taxpayers paying substantial rent. By understanding the key provisions—such as when TDS must be deducted, the applicable rate, and filing requirements—tenants can ensure smooth compliance with tax laws. It’s essential to stay on top of the timelines and processes, as penalties for non-compliance can be hefty. With the right knowledge and timely action, both tenants and landlords can avoid hassles related to TDS on rent.
For further assistance on TDS and other tax-related matters, feel free to reach out to professional tax advisors or accountants.