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Certain amendments were introduced to the existing provision of applicability of TDS on rent and also the rates applicable for deducting the TDS, through the Union Budget'17. Prior to the said amendment, the requirement to deduct the TDS was applicable only to assessees falling under the certain category of Business and Professionals. Through the said amendments, the requirement to deduct the TDS has been extended to bring specified categories of salaried individuals, under its purview.

Among the said amendments, the introduction of the Section 194 IB is one of the most important one, which we will discuss in detail.

SECTION 194-IB TDS on rent, exceeding Rs. 50,000/-

This new section 194-IB is introduced to bring under its purview, the requirement to deduct the TDS on rent, exceeding Rs. 50,000/- from June 1, 2017.

Main highlights of this section are as follows:

Rate of TDS:

This section requires that every individual or HUF, paying rent of more than Rs. 50,000/- per month (or part of a month) whose accounts are not subject to audit under Income tax law during the previous year, for the use of any land or building or both, is required to deduct TDS at the rate of 5%.

PAN not available:

If the PAN of the landlord is not available, then tax has to be deducted at 20 per cent, instead of 5 per cent. After filing form 26QC, the tenant has to generate Form 16C and issue it to the landlord within 15 days. However, if the PAN of recipient is not available, rate of TDS will be 20% (limited to the rent of last month of the tenancy).

Amount on which tax is to be deducted:

Tax is to be deducted on the total annual rent paid. The tenant is required to deduct and deposit the taxes only once in a financial year, through a challan-cum-statement (Form 26QC), unless the tenancy ends before the end of the financial year.

When TDS is to be deducted:

TDS amount shall be deducted in the last month of the previous year or the last month of tenancy, if the property is vacated during the year, whichever the case may be.

Multiple tenants:

If multiple tenants are staying at the same place where rent paid by individual tenant does not exceed Rs 50,000, while the collective rent exceeds Rs 50,000 per month; in such case, the requirement to deduct the TDS is not applicable, provided relevant details of all tenants are available in the registered agreement with the owner.

On the other hand, if the entire rent, exceeding Rs 50,000 per month, is collated and paid by a single tenant, then the deduction of TDS is required.

No need of TAN:

The tenants do not require TAN for the TDS.

Process of TDS payment:

The TDS so deducted shall be paid to the credit of the Central Government within a period of thirty days from the end of the month during which the deduction is made and shall be accompanied by a challan- cum-statement in Form No. 26QC.Further every person responsible for deduction of tax under section 194-IB shall furnish the certificate of deduction of tax at source in Form No.16C (TDS certificate) to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No. 26QC.

Penalty and Interest:

If the tenant does not deduct the TDS or fails to deposit the tax with the government, both tenant as well as landlord will be liable to pay penalty and interest. The penalty for not deducting TDS and not depositing the tax with the government is 1 per cent and 1.5 per cent, respectively, per month.

Meaning of Rent as per law:

'Rent' for the above purposes 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.

The author is a Member of the CPA Institute, Australia and Associate member of Institute of Chartered Accountants of India and can be reached at casusmitadutta@gmail.com .

Disclaimer: The facts and opinions written in this column are those of the author and have been prepared on the basis of relevant provisions and information available at the time of preparation. The article does not constitute any professional advice or formal recommendation. The author has under taken utmost care to disseminate true and correct views and does not accept liability of any errors or omissions.


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