TDS on individual paying rent more than 50K

Introduction: This article explains the new section 194 IB added by the budget 2017 in the Income Tax Act which is effective from June 1, 2017.

Background: Earlier, only individuals and HUFs who were mandatorily required to have their accounts audited as per the tax laws were required to withhold tax on rental payments on immovable property. However, with the introduction of this new section, all individuals and HUFs who are paying rent over and above Rs. 50,000 per month would be mandatorily required to withhold tax from June 1, 2017. 

Provisions of section 194 IB: The provisions are explained by way of questions.

Effective date of section 194IB?
This section is applicable w.e.f. June 1, 2017.

Who are covered by this section?

Individuals and HUFs whose accounts are not required to be audited under the Indian tax laws. For Individuals and HUFs whose accounts are required to get their accounts audited (under section 44AB of IT Act) are covered by separate section 194I and they do not fall in this section.

1. Who has to deduct tax?
2. Who is paying rent to a resident has to deduct TDS from rent.
3. Meaning of Rent?
4. Threshold of income?

Rent paid in excess of Rs. 50,000 per month or part of the month. 

Rate of tax to be deducted?
5%

Property covered?
Commercial and residential property

Amount on which TDS to be deducted?
Total annual rent paid to resident landlord.

Frequency of deductions?
Tax needs to be withheld /deducted once in the financial year only. However, where the property is vacated during the year, the tax needs to be deducted on the last day of the tenancy. 

Requirement of TAN?
The tenant does not need to apply for TAN. Provision of section 203A does not apply to person covered in this section. His PAN number is sufficient to meet the provisions of this section.

Requirement of PAN of landlord?
In the absence of PAN or failure to provide the same, tax shall be withheld/deducted @20%. However, the overall tax in such a scenario shall be restricted to the rent payable for the last month of the financial year or tenancy whichever is earlier. 

How to deposit tax?

The tenant should fill a Form 26QC electronically which is a challan-cum-statement. Either make the payment online or make the payment subsequently by visiting any of the authorized bank branches.

How will transactions of joint parties (more than one tenant/landlord) be filed in Form 26QC?

Online challan-cum-statement in Form 26QC is to be filed by each tenant for unique tenant-landlord combination for respective share. E.g. in case of one tenant and two landlords, two forms have to be filed in and for two tenants and two landlords, four forms have to be filed for respective rent shares.

When to deposit tax?

Within 30 days from the end of the month in which the deduction was made.

Tenant to provide proof of TDS deducted to landlord?

Tenant needs to issue a TDS/ tax paid certificate (Form 16C) to the landlord as proof of taxes deducted. It is to be issued within 45 days from the end of the month in which the tax was deducted. Form 16C will carry details such as name and address of the deductor (that is, the tenant) along with PAN, name and address of the deductee (the landlord) along with PAN, details of how much tax was deducted and deposited, the date of payment on which the tax was deposited.

Penalty/ fees for non-deduction of TDS or delay in its deposit?

• For, non-deduction of tax, the tenant may be required to pay a penalty equal to amount of taxes not withheld.
• If the tenant delays in deposit of taxes withheld, he may be liable to pay penal interest at the rate of 1% per month where there is delay in deducting and depositing the tax or 1.5% per month where tax is deducted but there is delay in depositing the same. 

What would happen if there is delay in filling of Form 26QC and issuing Form 16C?

• Delay in filing of Form 26QC may attract a late fee of Rs. 200 per day. 
• Also there maybe consequential penalties for non- filing that may range from Rs.10,000 to Rs.1lakh.
• Besides penalty and interest, defaulters can also face imprisonment for a term which shall not be less than 3 months but may extend to 7 years and with fine.
• For delay in issuing Form 16C, the penalty is Rs. 100 per day.  

Disclaimer: This article is provided for information purposes only it could not be considered as legal or financial advice.