Clarification and FAQ's on Section 194IB of Income Tax Act, 1961

Section 194-IB deals with the provisions relating to Tax deducted at source (TDS) on Rent paid by individual / HUF.

Basic provisions of section 194-IB

As per Section 194-IB of the Income Tax Act, 1961, the tenant is required to deduct TDS, if the following conditions are satisfied -

• The tenant is either an Individual or HUF whose aggregate turnover / total sales / gross receipts from the business or profession doesn't exceed the monetary limit specified under section 44AB clause (a) or (b).

In other words, the tenant, being an individual or HUF, is not liable to get its accounts audited.

• The tenant is paying to a 'resident' any income by way of rent. Payment to non-resident is not covered under section 194-IB.
• The payment of rent exceeds INR 50,000 per month or part of a month during the previous year.

Meaning of the term 'Rent'

Explanation to section 194-IB of the Income Tax Act, 1961 provides explicitly the meaning of term 'Rent'. As per the said explanation, Rent means any payment done under any tenancy or lease or sub-lease or any agreement or any arrangement for the use of any land or building or both.

Rate of TDS under section 194IB

The Individual or HUF who is liable to deduct TDS in terms of provisions of section 194-IB of the Income Tax Act, 1961 is required to deduct TDS @ 5%.

It is important to mention here that in the absence of the PAN of the landlord, the tenant is liable to deduct TDS at the maximum marginal rate of 20%. However, clause (4) to section 194-IB specifically states that such deduction should not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy.

Time of TDS deduction under Section 194IB

If the provisions of section 194-IB of the Income Tax Act, 1961 gets attracted, the individual / HUF is required to deduct TDS within earlier of the following dates -

• At the time of credit of rent for the last month of the previous year or last month of a tenancy (if in case during the year the property gets vacated); or
• At the time of payment in cash or cheque or draft or by any other mode.

TDS Deposit with the Government

Section 194-IB (3) specifically states that the provision of section 203A shall not apply to the tenant who is required to deduct TDS. Meaning thereby that the tenant is not required to obtain 'Tax Deduction and Collection Account Number' i.e. TAN.

The tenant is required to deposit TDS by filing Challan-cum-Statement in Form 26QC. The tenant is liable to make a deposit of the deducted TDS within a period of 30 days from the end of the month in which TDS is deducted [Rule 30 (2B)].

Following are the steps which the tenant should follow in order to file Form 26QC

1. Visit site https://www.tin-nsdl.com/.
2. Navigate the path Services > TDS on Rent of Property.
3. Click on 'Online form for furnishing TDS on Rent of Property (Form 26QC)'.
4. Under e-payment of Taxes, go to 'TDS on Rent of Property (Form 26QC)' and click on 'Proceed'.
5. Step by step, fill up the Form 26QC and submit.

Issuance of TDS certificate

Rule 31 (3B) of the Income Tax Rules mandates the tenant to issue TDS certificate within a period of 15 days from the due date of furnishing of Challan-Cum-Statement in Form 26QC.

Example for better understanding

Mr. A (Tenant) entered into a tenancy agreement with Mr. B (Landlord) for a period of 11 months, starting from 1st October 2019 to 31st August 2020. The rent fixed is INR 100,000 per month.

Frequently Asked Questions (FAQ)

Q.1 What is TDS under section 194IB?

Ans: Section 194IB of the Income Tax Act, 1961 requires the individual / HUF, who are not required to gets their account audited, to deduct TDS in case the rent amount exceeds INR 50,000 per month or part thereof.

Q.2 What is exemption limit for TDS on rent?

Ans: Exemption limit for TDS on rent under section 194-IB of the Income Tax Act, 1961 is INR 50,000 per month.

Q.3 What is period of tenancy in Form 26QC?

Ans: Form 26QC needs to be filed within a period of 30 days from the end of the month in which TDS is deducted.

Q.4 What happens if TDS is not deducted on rent?

Ans: If the tenant required to deduct TDS under section 194-IB fails to deduct the same, then, the tenant would be liable to pay late fee @1% per month from the date the TDS was required to be deducted till the date the TDS actually deducted.

Q.5 How is TDS calculated on rent with example?

Ans: Suppose Mr. X pays rent of INR 80,000 per month for 12 months to Mr. Y then TDS as per provisions of section 194-IB would be deducted as under -

Total rent paid in a year - INR 80,000 * 12 months = INR 9,60,000

TDS deductible - INR 9,60,000 * 5% = INR 48,000

Rent payable in last month after TDS deduction = INR 80,000 &ndash-; INR 48,000 = INR 32,000