TDS On Rent: Provisions of this section are applicable from 1st June 2017. From 1st June 2017, a new division, 194IB, has been introduced. It deals with the tax deducted at the source of rent payment. This new section has mandated certain HUF or individuals that any rent paid under a Joint Development Agreement (JDA) to the landlord for the use of any building or land or both has to deduct TDS. When the asset owner and developer come into an agreement, it is known as a joint development agreement. The Government introduced the Provisions of TDS through section 194I, 194IB and 194IC to keep track of all the payment activities relating to assets or commercial spaces, personal spaces and equipment, etc., as transactions relating to such activities have increased considerably.
- Requirements to Deduct TDS Under Section 194IB
- Rate of TDS – TDS Deductible on Rent Paid or Payable is Fixed at the Rate of 5%
- Procedure to Fill Challan cum Statement in Form 26QC
- Required Details to Fill Form 26QC
- Furnishing The New Form: Form 16C
- Types of Penalties
- Interests for Late Payment of TDS
- Section 194I vs Section 194IB
Requirements to Deduct TDS Under Section 194IB
- HUF and individuals whose turnover or gross receipts are not exceeding ₹ 10 million or ₹ 50 Lakh in profession or business and are therefore not required to audit his books of accounts under section 44AB.
- HUF and Individual whose reporting profits are lower than the speculative profits and are required to audit their accounts under Points (c), (d), or (e) of section 44AB
- In other words, only HUF and Individuals whose accounts are audited because of turnover or gross receipts higher than the set-out limits are not covered under this section. All other HUFs and individuals are covered under this section.
Other Points:
- Under section 194IB, coverage is provided to the person who doesn’t have any income or salaried person.
- Partnership firm, company, BOI and AOP are not covered under this section and are therefore required to deduct TDS from rent under section 194I.
Rate of TDS – TDS Deductible on Rent Paid or Payable is Fixed at the Rate of 5%
Payment Covered
Payment exceeding ₹50,000 per month as rent to the landlord (who is a resident) for the use of any building or land or both are liable for a tax deduction.
Other Points:
- Under this section, any payment made under tenancy, lease, sublease or any arrangements or agreements for the use of any building or land or both are covered.
- Refundable security deposit made by tenant as rent to the landlord when taking property to be covered under this section.
- Under section 194I, rent payments made for furniture and fittings, equipment, plant and machinery are covered.
- TDS is deductible under section 195 if any payment is made to a non-resident.
Due Date of Payment:
Payment is to be made by the tenant within 30 days from the end of the month on which deduction is made using Form 26QC, which is a challan cum statement. For example, payment is to be made by 30th April if the deduction is made in March.
Other Points:
- If a person vacates one house and moves to another and the rent of both houses is more than ₹ 50,000, then Form 26QC is to be made twice a year for each property owner. In simpler words, Form 26QC is to be duly filled by each tenant for a unique tenant-landlord combination for the respective share. For example:-
- Only one Form is asked to be filled in the case of a single tenant and a single landlord.
- In the case of single-tenant and two landlords, they must fill two forms for respective shares.
- In the case of two tenants and two landlords, they must fill four forms for respective shares.
- As deduction is required once a year, payment is required to be deposited to Government only once a year. However, if the tenant must file more than one Form, separate payment should be made for each Form.
Time of Deduction:
TDS should be deducted only once a year and not every month. TDS is to be deducted earlier from the following:-
- At the time of credit of rent in the form of cash or cheque to the payee’s account for March or the last month of tenancy, if the property is vacated during the year as the case may be.
- At the time of payment of rent in the form of cash or cheque to the payee for March or the last month of tenancy, the property is vacated during the year, as the case may be.
- When the payment is made on the same day by or on behalf of the Government.
However, suppose the details of PAN is not furnished by the person receiving rent. In that case, TDS is deductible at the rate of 20%, which is again subjected to the maximum limit of the amount of rent payable for March or the tenant’s last month, as the case may be.
No Requirement of TAN Number:
Such a person does not require a TAN number to deduct and deposit TDS to Government.
Special Considerations:
- Warehouse charges are liable to TDS u/s 194I.
- Security deposit paid to an asset owner is not liable to TDS unless the amount is adjusted against rent which becomes susceptible to TDS u/s 194I.
- Under an agreement, if accommodation to any hotel is taken regularly, it becomes liable to TDS payment.
Procedure to Fill Challan cum Statement in Form 26QC
Rule 31A of Income-tax rules states that ‘a challan cum statement in Form 26QC is to be filed within 30 days from the end of the month in which deduction under this section is made.’
Required Details to Fill Form 26QC
- PAN of landlord and tenant’s PAN
- Address of both landlord and tenant
- Address of let out Property
- The total amount of rent payable
- Rent paid or payable for March or the last month of tenancy
- Period of Tenancy
- Date of tax deduction
- Interest or late fees payable
- Payment can be made through net banking when filing form 26QC or can be made afterwards using an e-payment gateway at a subsequent date or visit any Authorized bank branch after filing form 26QC.
Furnishing The New Form: Form 16C
A new certificate of TDS has been issued by the Government of India. This Form comes as the new 16C From, which shows the number of TDS that will be deducted from the rent. This reduction will be made at the rate of 5% by the individuals or HUF. This Form is to be given to the landlord by the tenant after generating it from the TRACES website. This Form is quite similar to Form 16, issued for salary, or Form 16A, which is issued for other payments.
The time frame that is allowed for the certificate issue is usually 15 days. This 15 days of time starts from the due date when a tenant files Form 26QC. This gives the tenant an entire window of 45 days from the month-end. If the landlord wishes to cross-examine the tax details, he can easily do so in his 26AS Form.
Example 1:
Let Mr. X be living in a 3BHK house. The rent payable for the penthouse is INR 75,000 every month. The financial institutions will deduct the TDS at the rate of 5% before the tenant pays rent to his landlord. Therefore, every month the TDS deducted will be INR 3750 on the rent INR 75,000. Thus, Mr. X will be spending a rent of INR 71,250, and the TDS that is deducted will go straight to the Government.
Example 2:
If the agreement of rent between tenant and landlord is spread across two financial years (FY):
The tenant, Mr. Y, has a tenancy agreement with his landlord for a total of 11 months. This period of 11 months is from 1st October 2017 to 31st August 2018. The rent that Mr. Y is supposed to pay is Rs. 60,000. In such a case, Mr. Y will file Form 26QC two times. He will first file it when the FY 2017-18 ends, i.e., 31st March 2018. He will file the second Form when his tenancy period ends, i.e., on 31st August 2018. The details are:
| Particulars | First Return | Second Return |
| Financial Year | 2017-18 | 2018-19 |
| Tenancy Period | Months = 6 | Months = 5 |
| Total-Rent | 3,60,000 | Less than 3,00,000 |
| Rent of Last Month | 60,000 | 60,000 |
| Amount Payable | 3,60,000 | 3,00,000 |
| Date of payment | 31st March, 2018 | 31st August, 2018 |
| TDS | 18,000 | 15,000 |
| TDS Deduction Date | 31st March, 2018 | 31st August, 2018 |
| Form 26QC Filing Date | On or before April 30, 2018 | On or before September 30, 3018 |
| Date to provide 16C to Landlord | On or before May 15, 2018 | On or before October 15, 2018 |
Example 3:
If the agreement of rent between tenant and landlord is in the same financial year (FY):
The tenant Mr. A has a tenancy agreement with his landlord for six months. This period of 6 months is from 1st June 2017 to 30th November 2017. The rent that Mr. A is supposed to pay is Rs. 80,000. In this case, Mr. A will file his 26QC Form once. He will file it when his tenancy period ends, i.e., on 30th November 2017. The details are:
| Particulars | By The End Of The Tenancy Period |
| Financial Year | 2017-18 |
| Tenancy Period | Months = 6 |
| Total-Rent | 4,80,000 |
| Rent of Last Month | 80,000 |
| Amount Payable | 4,80,000 |
| Date of payment | 30th November, 2017 |
| TDS | 24,000 |
| TDS Deduction Date | 30th November, 2017 |
| Form 26QC Filing Date | On or before 30th December 2017 |
| Date to provide 16C to Landlord | On or before 15th January 2018 |
Note:
If the landlord misses providing his PAN details, then the TDS on rent will be subjected to a rate of 20%.
Types of Penalties
There are various types of penalties that are charged. These are:
- Any delay in the filing of the 26QC Form is subjected to a late fine. This late fine amounts to 200 rupees a day. It would be best if you kept in mind that the number of late filing fees should not cross the total amount of TDS.
- Any delay in the filing of the 16C Form is also subjected to a late fine. This fine amounts to 100 rupees a day. In this case, too, the total amount of late fees should not exceed the total amount of TDS.
- In some instances, the amount of penalty charged can go up to 1,00,000 rupees. In case of late filing of the TDS statement (especially if it goes later than a year from the due date), then the late fine can be charged at 10,000 rupees, which can go up to 1,00,000 rupees. If the case is of filing incorrect details (giving false information like PAN or amount of TDS), the penalty can also be the same.
Interests for Late Payment of TDS
For any short payment or late payment of TDS, interests are charged.
- Interest would be charged at 1% every month in case TDS has not been deducted. This period will continue from when the TDS is deductible to the actual date when it is deducted.
- The banks would charge the interest rate at 1.5% per month if the TDS has been deducted, but the payment is made late. In this case, too, the period of interest will continue when the TDS is deductible to the actual date when it is deducted.
Section 194I vs Section 194IB
| Basis of difference | Section 194I | Section 194IB |
| Eligibility for deduction of TDS | In the case of business, if the total turnover crosses Rs. 1 Crore. In the case of professionals, if the turnover crosses 50 Lakhs. |
There is no limit as such. |
| Rent Limit for deducting TDS | Rs 2.4 lakhs per year | Rs. 50,000 every month |
| Asset on which it is applicable | Buildings, Land, Machinery or Plants | Buildings, Land |
| The rate at which TDS is deducted | On plant and machinery, the rate is 2% On land, furniture, building, etc. the rate is 10% |
5% is charged if the landowner provides PAN details. 20% is charged if the landowner fails to provide PAN details |
| Requirement of TAN | Yes | No |
| The form that is required to be submitted | 26Q | 26QC |
| Payment | Monthly | Once every year |
| Return | Quarterly | Once every year |