The Government of India regularize the Income tax Act to cover all the income earned by Residents through their business activities and properties under the tax purview and it also put efforts to eliminate the possible ways of tax avoidance by amending the respective sections of Income tax Act according to the present requirements.
On the process of curbing the black money since 2016, the Indian Government tries to sort out the issues arises by unreported income in many ways, in the scenario mentioned above it also steps forward to figure out a solution for the unreported rental income earned through the immovable properties by introducing the section 194-IB of Income tax Act which clearly mentioned about the provisions of tax deduction related to the Rental Income earned by the resident.
What is amended u/s 194 IB of the Income tax Act, 1961?
As per the new amendment under section 194 IB of the Income tax Act, 1961 with effect from 1st June 2017, The Individual or HUF should deduct the tax on the rent what they are paying to the resident persons if it is more than Rs.50000 per month or part of a month during the previous year.
Whether this provision covered those persons u/s 194 I?
No, According to the section 194 IB, It's not applicable to those person who covered u/s 194 I and they can follow the existing process of tax deduction.
What is the meaning for Rent under this section 194 IB?
Under this section, the term 'Rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.
Who is responsible to deduct the tax on Rent?
The person who is using the property for his own purpose on rent and agreed to pay a sum which is more than Rs.50000 per month or part of a month at any time during the previous year is responsible to deduct the tax on their rental payment
When the tenant has to deduct the tax?
The Income-tax Act referred to in sub-section (1) shall be deducted on such rental income at the time of credit, for the last month of the previous year or the last month of tenancy if the property is 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 issue of a cheque or draft or by any other mode, whichever is earlier.
What is the rate of tds to be deducted on the rental amount?
As per the Income tax Act, at present it is an amount equal to 5% of such income as income tax in the normal cases and it may vary if the Lessor of the property not provided PAN.
Whether TAN is mandatory to deduct the tds?
No need to obtain TAN for this purpose, the provisions of section 203A shall not apply to a person required to deduct tax u/s 194 IB. So the person who deducts tax on rent should mention their PAN instead of TAN for the further process.
What the tenant should do if landlord not provides the PAN?
In absence of PAN form the Lessor of the property, tax required to be deducted as per the provisions of section 206AA which is 20% of that income but such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.
What is the procedure to remit that deducted tax to the department?
The tenant should deposit the deducted tax within 30 days from the end of relevant month either the last month of the previous year or last month of occupancy by filing form 26 QC
What is the certificate he needs to provide to the Lessor of the property?
Tenant as a deductor of tax, he should provide the tax deduction certificate in form 16C within 15 days from the date of filing.
Can the Lessor of the properties take the refund of that deducted tax?
Yes, the deductee can take the refund by filing Income tax returns as per the Income tax or he can set off the excess tax deduction on his other taxable income.
What is the benefit for tenant through the above process?
Tenant can take the complete expenses if he used the premises for business purpose or he can take maximum deductions u/s 80GG or House Rental allowances exemption u/s 10(13A) of the Income tax Act for salaried employees.
What is the Interest or Penalty related to non-deposit of deducted tax on time?
The tenant should pay interest at 1.5% per month on deducted tax amount from the last month of occupancy or the last month of previous year till the date of deposit.
Finally the above process may be the proper solution for the unreported income to come under the tax bracket if followed properly through the support of the common people and as a chartered accountant we are ready to help in the above process with pleasure.
The author is a practicing Chartered Accountant in Bangalore, India and also a professionally graduated rank holder Cost and Management Accountant. He can also be reached at sneshg@yahoo.in
Disclaimer: The contents of this article are solely for information and knowledge and does not constitute any professional advice or recommendation. Author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon.
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