In the finance Act, 2017. A new section has been inserted in relation to renting i.e. 194-IB. This section is made specifically for individuals and HUF.
As per this section any person, being
- an individual or
- a HUF or
- a person other than those individuals or HUF whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits of Rs.1 crore and `Rs.50 lakhs, respectively, specified under section 44AB in the immediately preceding financial year,
Shall be responsible for deducting the TDS @ 5% on the payment of rent to a resident owner.
Threshold Limit for Deducting TDS
Under this section, the tax has to be deducted at source only if the amount of such rent exceeds Rs.50,000 for a month or a part of the month.
Note: Do not confuse with the threshold limit as defined under section 194I. As per this section, TDS is required to be deducted if the rent for a year exceeds Rs.2.4 Lakhs and here the limit is Rs.50 thousand per month i.e. Rs.6 Lakhs per year.
The time limit within which TDS needs to be deducted
Under this section, TDS is required to be deducted at the earlier of the following:-
- At the time of credit of such rent, for the last month of the previous year
Or
- The last month of tenancy, if the rented property has 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 the issue of cheque or draft or by any other mode.
No Need to obtain TAN number
The provisions of section 203A containing the requirement of obtaining Tax deduction account number (TAN) shall not apply to the person required to deduct tax in accordance with the provisions of section 194-IB.
Issuance of TDS certificate –
Within a period of 15 days, the tenant has to issue a TDS certificate from the due date of furnishing of the Challan-Cum-Statement in Form 26QC as per Rule 31 (3B) of the Income Tax Rules.
Form 26QC shall be used for the deposit TDS by filing Challan-cum-Statement by the tenant. The TDS is required to be deposited by the tenant, within a period of 30 days from the end of the month in which TDS is deducted [Rule 30 (2B)].
Steps for depositing the TDS and generate Form 26QC
In order to file Form 26QC, the tenant has to follow the following steps –
- Go to site https://www.tin-nsdl.com/.
- Click on “TDS on Rent of Property”.
- GO to ‘Online form for furnishing TDS on Rent of Property (Form 26QC)’.
- Under e-payment of Taxes, enter to ‘TDS on Rent of Property (Form 26QC)’ and then on ‘Proceed’.
- Step by step, fill up the Form 26QC and submit.
Meaning of Rent under this section
“Rent” means the payment made by the payee, for the use of any land or building or both, by whatever name called, under any lease, sub-lease, or any other agreement or arrangement.
Deduction amount could not exceed the amount of rent for the last month
As per Section 206AA of the income tax act, 1961, Permanent Account Number (PAN) of the deductee to the deductor is compulsory. If the recipient of the services did not have a valid PAN Number then the deductor shall deduct the TDS at a higher rate (i.e., higher of the rate provided in the relevant section, rates in force and 20%). Although, where the TDS is required to be deducted as per the provisions of section 206AA of Income-tax Act, 1961 then deduction amount would not exceed the amount of rent payable for the last month of the previous year or the last month of the rent, as the case may be.
For Example:
Question Mr. X, a salaried individual, pays rent of ` 55,000 per month to Mr. Y from June 2019. Is he required to deduct tax at source? If so, when is he required to deduct tax? Also, compute the amount of tax to be deducted at source.
Would your answer change if Mr. X vacated the premises on 31st December 2019? Also, what would be your answer if Mr. Y does not provide his PAN to Mr. X?
Answer Since Mr. X pays rent exceeding ` 50,000 per month in the F.Y. 2019-20, he is liable to deduct tax at source @5% of such rent for F.Y. 2019-20 under section 194-IB. Thus, ` 27,500 [` 55,000 x 5% x 10] has to be deducted from rent payable for March, 2020.
If Mr. X vacated the premises in December 2019, then tax of ` 19,250 [` 55,000 x 5% x 7] has to be deducted from the rent payable for December 2019.
In case Mr. Y does not provide his PAN to Mr. X, the tax would be deductible @20%, instead of 5%.
In case 1 above, this would amount to ` 1,10,000 [` 55,000 x 20% x 10] but the same has to be restricted to ` 55,000, being rent for March, 2020.
In case 2 above, this would amount to ` 77,000 [` 55,000 x 20% x 7] but the same has to be restricted to ` 55,000, being rent for December 2019
Difference between 194I and 194-IB
| Particulars | Section 194-I | Section 194-IB |
| Applicability | 194I is applicable to all the persons other than individual / HUF who are not required to get their account audited. | Applicable only to the individual / HUF who are not required to get their account audited |
| Rate of TDS | 10% | 5% |
| Minimum exemption limit | INR 2,40,000 per annum | INR 50,000 per month |
| Period of TDS deduction | Monthly | Only once in a year. |
| The requirement of TAN for Deductor | Yes | No |
| Form of TDS | Form 16A | Form 16C |