TDS deduction on Rent paid by Individuals under income tax
The Finance Act, 2017 introduced section 194-IB making deduction of TDS mandatory for tenants who are paying a rent of more than Rs. 50,000 per month.

Introduction

Up to the financial year 2016-17, only those individuals or HUFs (Hindu Undivided family) who were covered under the purview of Section 44AB, were liable to deduct the TDS on rent paid by them under the provisions of Section 194-I of the Income Tax Act. However, with the object of curbing evasion of tax, the government introduced Tax Deduction at Source (TDS) on certain transactions including rental payments made by individuals or HUFs.

Applicability of Section 194IB

As per provisions of Section 194IB, any individual or HUFs who are not liable to get audit u/s 44AB of the Income Tax Act shall deduct TDS on the rent paid to any resident if such rent exceeds Rs. 50,000 per month.

Definition of “Rent” for purpose of Section 194-IB

For the purpose of this section, rent means the amount paid by the tenant under a tenancy or lease agreement made for assets such as land, building, furniture & fixtures, plant, machinery or equipment, etc.

Point of Deduction of TDS

TDS under section 194-IB shall be deducted, earlier of – At the time of Credit of rent (last month of the previous year or last month of the lease agreement) Or At the time of payment of rent

Rate of TDS under Section 194IB

  • If rent paid exceeds Rs. 50,000 and PAN is provided – 5% of the rent paid or credited
  • If the rent paid exceeds Rs. 50,000 and PAN of the landlord is not available – 20% of the rent paid or credited.

Frequency of payment of TDS under Section 194IB

A tenant is liable to deduct and pay TDS only once a financial year. A tenant can make the payment of TDS vide Form 26QC. Upon payment of TDS, Form 16C will be generated. Form 16C can be shared with the landlord as proof for the deduction of TDS. For the purpose of deduction of TDS, the tenant need not have a Tax Deduction Account Number (TAN).

Penalty for non-deduction or non-payment of TDS

Event Interest or Penalty Payable
Non –Deduction of TDS u/s 194IB Interest @1% per month or part thereof A penalty that may extend to the TDS amount
Non-Deposit of TDS u/s 194IB Interest @1.50% per month or part thereof
Non-filing of Form 26QC within the due date Late fees of Rs.200 per day
 

Comparison of Section 194I and 194-IB of Income Tax Act

Post Finance Act, 2017, TDS on rent can be divided into the following categories- —
Section Persons Covered Rent paid for Rate of TDS
194-I Rent paid by Taxpayers falling under the purview of Section 44AB (Tax Audit) of the Income Tax Act* Plant Machinery Equipment

2%

Land Building Furniture or Fitting

10%

194-IB Rent paid by Individuals or HUFs** Land Building Furniture or Fitting Plant Machinery Equipment

5%

* No TDS u/s 194-I shall be deducted if the total amount of rent paid/ credited during the fiscal year doesn’t exceed Rs.2,40,000. ** Tenant being individual or HUFs is only liable to deduct TDS if the amount of rent paid exceeds Rs. 50,000 per month.

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