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Differentiating TDS on Rent: Section 194IB vs 195 of IT Act, 1961

CA. Bhavik P. Chudasama , Last updated: 11 April 2024  
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Comprehensive Guide to TDS on Rent (Section 194IB & 195)

The Income Tax Act mandates tenants to deduct Tax Deducted at Source (TDS) on rent payments under certain circumstances. This helps collect tax from landlords at the source of income. Here's a breakdown of TDS on rent under Section 194IB and 195:

Differentiating TDS on Rent: Section 194IB vs 195 of IT Act, 1961

Section 194IB

  • Applies when rent paid to a resident landlord (living in India) exceeds Rs. 50,000 per month.
  • The tenant deducts TDS at 5% of the rent. If the landlord doesn't provide their PAN, the deduction rate increases to 20%.
  • The tenant deposits the deducted TDS using Challan-cum-statement in Form 26QC.
  • The tenant issues a TDS certificate in Form 16C to the landlord.

Section 195

  • Applies when rent is paid to a Non-Resident Indian (NRI) landlord. There's no minimum threshold for rent amount.
  • The deduction rate depends on the applicable tax rate for NRIs (usually 30% plus Education Cess 4%) or any beneficial tax treaty rate between India and the NRI's country of residence.
  • The tenant deposits the deducted TDS Monthly as per general TDS Provision and File Quarterly TDS Return using Form 27Q.
  • Under Section 195, the tenant issues a TDS certificate in Form 16A to the NRI landlord.
 

Important Points

  • It's the tenant's responsibility to deduct and deposit TDS as per the applicable section.
  • Failure to deduct or deposit TDS can attract penalties.
  • Both tenant and landlord should keep records of rent payments and TDS certificates for tax filing purposes.

Here's a table outlining the key differences between Section 194IB and Section 195 of the Income Tax Act, 1961, with respect to rent

Feature

Section 194IB

Section 195

Applicability

Resident landlord

Non-Resident Indian (NRI) landlord

Minimum Rent Threshold

Exceeds Rs. 50,000 per month

No threshold amount

Tenant Responsibility

Deduct TDS if crosses threshold limit

Deduct TDS irrespective of tenant's audit status

Deduction Rate

5% (or 20% if no PAN provided by landlord)

Applicable rate (usually 30% + Cess 4%) or treaty rate

Form for TDS Deposit

Challan-cum-statement in Form 26QC

Quarterly TDS Return (Form 27Q)

TDS certificate

Form 16C

Form 16A

 

Disclaimer: We request readers to seek professional advice before arriving at any decision/conclusion after reading. We are not responsible for any loss arising to anyone after referring and relying on this article. Above views are based on our understanding of the provisions

The author can also be reached at office.bhavikco@gmail.com

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Published by

CA. Bhavik P. Chudasama
(Practice)
Category Income Tax   Report

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