Introduction
Section 194IB of the Income Tax Act governs the Tax Deducted at Source (TDS) on rent payments for resident individuals who are not liable for tax audits. Introduced to curb tax evasion and ensure compliance, this provision mandates tenants to deduct tax on rent payments exceeding ₹50,000 per month.
This section directly impacts individuals renting properties, adding a layer of tax compliance and accountability. Below, we explore the essential elements of this section, including requirements, penalties, exemptions, and practical examples.
Scope and Applicability of Section 194IB
Section 194IB mandates that individuals and HUFs who are not subjected to tax audit and pay a monthly rent exceeding ₹50,000 must deduct TDS on such payments. The provision ensures tax deductions are properly recorded and remitted. This section applies only to land or buildings, including both residential and commercial properties, and does not extend to machinery, equipment, furniture, or fittings.
TDS Rate Under Section 194IB
Before October 1, 2024: TDS must be deducted at 5% on rent exceeding ₹50,000 per month.
From October 1, 2024, onwards: TDS is reduced to 2%.
If the landlord does not furnish a PAN: TDS at 20% must be deducted.
Compliance Requirements Under Section 194IB
To comply with Section 194IB, tenants must:
Deduct TDS at the time of crediting the rent for the last month of the tenancy or the financial year, whichever is earlier.
Deposit TDS using Form 26QC within 30 days from the end of the month in which rent is credited or paid.
Issue Form 16C to the landlord as proof of TDS deduction.
Timeline for TDS Payment and Return Filing
TDS must be deposited within 30 days of deduction.
For rent paid in March, the TDS must be deposited by April 30 of the following year.
Late filing penalty: ₹200 per day, capped at the total TDS amount.
Example: Rent Payments and TDS Calculation
Scenario 1: Monthly Rent Payment
For a monthly rent of ₹60,000:
Before October 1, 2024: TDS at 5% = ₹3,000 per month.
From October 1, 2024: TDS at 2% = ₹1,200 per month.
Without PAN: TDS at 20% = ₹12,000 per month.
Scenario 2: Rent Paid at the End of the Year
If rent is paid at the end of the financial year (e.g., on March 7, 2025), TDS must be deducted as follows:
April 1 – September 30, 2024 (6 months) → TDS at 5% = ₹18,000
October 1, 2024 – March 31, 2025 (6 months) → TDS at 2% = ₹7,200
Total TDS to be deducted = ₹25,200
Special Considerations for Salaried Persons Paying Rent at the End of the Year
Many salaried individuals prefer paying accumulated rent for the last six months or the entire year by March 7, 2025. In such cases, tenants must deduct TDS at the applicable rate for each period, ensuring compliance with Section 194IB.
Penalties for Non-Compliance
Non-compliance with Section 194IB leads to penalties, including:
Interest on late deduction: 1% per month from the due date until deducted.
Interest on late deposit: 1.5% per month from the due date until deposited.
Late TDS return filing penalty: ₹200 per day, capped at the total TDS amount.
Comparison Between Section 194I and Section 194IB
Understanding the differences between Section 194I and Section 194IB helps taxpayers discern their specific compliance obligations:
| Aspect | Section 194I | Section 194IB |
|---|---|---|
| Applicability | Tax-audited residents, including individuals and HUFs | Non-tax-audited resident individuals, salaried persons |
| Deduction Timing | Credit or payment, whichever is earlier | Last month of tenancy or financial year |
| TDS Rate | 10% on buildings, 2% on machinery | 5% before October 1, 2024; 2% from October 1, 2024 |
| Monetary Limit | ₹2,40,000 annually | ₹50,000 per month |
| TAN Requirement | Yes | No |
| TDS Certificate | Form 16A | Form 16C |
| TDS Return | Form 26Q | Form 26QC |
| Covers Non-Resident Landlords | Yes | No |
Filing Process for TDS Under Section 194IB
To ensure compliance, tenants must file Form 26QC following these steps:
Access the TRACES Website and navigate to the “e-Payment” section.
Fill out Form 26QC with details of the landlord and rent paid.
Make the TDS payment online through a net banking facility.
Download Form 16C from TRACES and provide it to the landlord.
Conclusion
Section 194IB plays a crucial role in ensuring tax compliance for individual tenants, including salaried persons. By understanding the deduction rates, filing timelines, and penalties, taxpayers can efficiently meet their obligations and avoid unnecessary liabilities.
