Refund of Excess TDS Paid Under Form 26QC Due to TDS Rate Reduction

Introduction

With effect from 1 October 2024, the Finance Act, 2024 has reduced the TDS rate under Section 194-IB of the Income-tax Act, 1961 from 5 percent to 2 percent. This amendment is particularly relevant to individuals and HUFs (not subject to tax audit under Section 44AB) who are required to deduct TDS on rent paid to resident landlords when monthly rent exceeds Rs. 50,000.

However, due to a lack of awareness, transitional confusion, or automated system defaults, many taxpayers have continued to deduct and deposit TDS at the old rate of 5 percent even after the effective date of the amendment. This has resulted in excess payment of TDS via Form 26QC.

This professional guide addresses the legal framework, practical implications, and the step-by-step process for claiming an online refund of excess TDS paid under Form 26QC.

Section 1: Legal Background of Section 194-IB and Recent Amendment

Section 194-IB requires that individuals or HUFs who are not required to audit their accounts under Section 44AB must deduct tax at source if monthly rent paid to a resident exceeds Rs. 50,000. The deduction is made at the time of credit or payment of rent for the last month of the financial year or the tenancy period, whichever is earlier. The tax deducted is to be deposited using Form 26QC.

As per CBDT Notification No. 41/2024 dated 24 June 2024, the applicable TDS rate stands reduced from 5 percent to 2 percent effective from 1 October 2024.

The new rate applies to all such payments made on or after 1 October 2024, irrespective of the period to which the rent pertains.

Section 2: Common Situations Leading to Excess TDS Payment

The following are the common scenarios where excess TDS may be paid:

1. Tenants deducted TDS at 5 percent for the full financial year 2024–25 despite the revised rate from October onwards.

2. Advance rent covering months after October 2024 was paid before the rate change but TDS was computed at the pre-amended rate.

3. The date range in Form 26QC was not correctly split between the pre- and post-amendment periods.

4. System or preparer defaults resulted in application of the higher rate.

5. The full rent was entered as a single amount instead of month-wise bifurcation.

In such cases, the only recourse available is to claim a refund of the excess amount through the TRACES portal.

Section 3: Documents Required for Refund Claim

Before initiating the refund process, the following documents and details must be kept ready:

• PAN of the tenant and landlord

• Form 26QC Acknowledgement Number

• Challan Identification Number (CIN)

• Copy of the rent agreement

• Calculation sheet showing the correct TDS as per the revised rate

• Rent receipts or payment proofs

• Valid bank account details of the tenant

• Aadhaar-linked mobile number or Digital Signature Certificate for e-verification

• Optional: Indemnity bond on stamp paper if required by the Assessing Officer

Section 4: Step-by-Step Process for Claiming Refund on TRACES Portal

Step 1: Login to TRACES as a Taxpayer (Tenant)

Visit www.tdscpc.gov.in and log in as a taxpayer using the tenant’s PAN and password. If not already registered, use the Form 26QC details to register.

Step 2: Initiate Refund Request

Navigate to the menu: Statements / Forms → Request for Refund (Form 26QC). The system will prompt for eligibility criteria. Confirm and proceed.

Step 3: Select Reason for Refund

Choose "Excess TDS paid due to incorrect rate" as the reason for the refund. Enter a brief justification, such as “TDS at 5 percent was erroneously paid for the full year despite the applicable rate being 2 percent from October 1, 2024 as per Notification No. 41/2024.”

Step 4: Enter Form and Challan Details

Enter Form 26QC Acknowledgement Number, Challan Identification Number (CIN), PANs of both tenant and landlord, date of TDS payment, and the amount paid.

Step 5: System Verification and Refund Calculation

The system auto-fetches the challan and return data and calculates the amount of TDS used against the landlord’s credit and the excess refundable amount.

Step 6: Upload Supporting Documents (Optional but Recommended)

Upload supporting documents such as the rent agreement, calculation sheet, payment proofs, and a refund request letter.

Step 7: Enter Bank Details

Provide valid bank account details of the tenant where the refund is to be credited.

Step 8: E-Verify and Submit

Use Aadhaar OTP or Digital Signature Certificate to e-verify and submit the request. Acknowledgement will be generated for future tracking.

Section 5: Timelines and Processing

• Submission of refund request: Immediate

• Processing by TRACES and CPC: Typically within 4 to 12 weeks

• Refund credit: Post-approval by AO or CPC auto-processing

In some cases, the Assessing Officer may request additional documents such as an indemnity bond or rent payment confirmation.

Section 6: Precautions for Future Compliance

• Split the rental period correctly in Form 26QC when the rate changes during the tenancy period.

• Use two separate 26QC forms if rent is paid partly before and partly after 1 October 2024.

• Maintain a proper TDS worksheet showing rate-wise bifurcation.

• Use the latest offline utility or check the updated rate on TRACES before filing.

Conclusion

While the reduction in TDS rate under Section 194-IB brings relief to individual tenants, procedural missteps in adapting to the new rate can lead to overpayment of TDS. This results in temporary cash blockage and necessitates a formal refund process.

The TRACES portal provides a structured online mechanism to seek refund of excess TDS deposited under Form 26QC. However, accuracy in documentation, selection of reason, and correct mapping of payment details is critical to avoid delays or rejections.

Tenants must exercise diligence during TDS computation and filing, and where excess TDS has already been deposited, initiate the refund claim process promptly using the prescribed steps.