Section 194IB of Income Tax Act, 1961 is applicable on TDS to be deducted on TDS on Rent Payment by Certain Individuals or HUF. Any Individual or HUF is required to deduct TDS @ 5% before making the payment to the resident recipient of rent if rent amount for each month exceeds Rs 50,000.
Rent means payment made for letting out, tenancy, lease, sub-lease or any other agreement or arrangement of renting or letting out of Plant, Machinery, Land, Building, Factory Building, Furniture, Fixtures or Fittings.
Important Points to be remember in Section 194IB are:
(1). As per Section 194IB, it is mandatory for any person (Individuals or HUF not liable for Tax Audit u/s 44AB) who pays another other RESIDENT person any income by way of RENT for a month exceeding Rs 50,000 must deduct TDS @ 5%.
(2). The TDS to be deducted @ 5%:
i) time of credit of rent (for the LAST MONTH (March) in the financial year or the last month in which tenant is vacating the property if the property is vacated before or during the year); OR
ii) at the time of actual payment of the rent
whichever is earlier.
(3). If the PAN of the recipient is NOT available then the rate of TDS will be 20%. However, the TDS amount CANNOT exceeds the last month rent.
(4). For deducting TDS, there is NO requirement of obtaining TAN.
(5). Challan-cum-statement in Form 26QC will have to be submitted. TDS certificate in Form 16C need to be issued by person deducting tax.
(6). TDS u/s 194 IB is to be deducted only if rent payment is made to RESIDENT. If rent is paid to NRI owner of property, then NO TDS u/s 194IB. Tenant may be Resident or Non-Resident. Rent paid by tenant may be for residential or commercial purpose.
Example –
Mr. Saurabh, a salaried employee, pays rent of Rs 80,000 per month to Mrs. Jyoti for the FY 2022-23. Is Mr. Saurabh is required to deduct TDS as per Income tax Act, 1961?
What if Mr. Saurabh has vacated the property in December, 2022. What will be his TDS liability?
What if in March 2023, Mrs. Jyoti did not furnish her PAN to Mr. Saurabh. What will be his TDS liability?
Answer –
As per Section – 194IB, Since Mr. Saurabh is paying RENT in excess of Rs 50,000 per month in FY 2022-23, he will be liable to deduct TDS @ 5% on payment of such rent amount to Mrs. Jyoti.
Hence, Rs 80,000 * 12 month * 5% = Rs 48,000 TDS will be deducted from LAST MONTH (MARCH) rent payment by Mr. Saurabh to Mrs. Jyoti. Net payment of Rent in March 2023 will be Rs 80,000 (Rent Amount) – Rs 48,000 (TDS) = Rs 32,000.
If Mr. Saurabh has vacated the property in December, 2022, then TDS will be deducted in December, 2022 of Rs 80,000 * 9 months * 5% = Rs 36,000 TDS for the LAST MONTH (December 2022) in which tenant is vacating the property if the property is vacated before or during the year or LAST MONTH (March 2023) in the FY 2022-23, whichever is EARLIER.
If Mrs. Jyoti does NOT furnishes her PAN to Mr. Saurabh, TDS @ 20% will be deducted. However, the TDS amount CANNOT exceeds the LAST MONTH rent. i.e., Rs 80,000 * 12 months * 20% = Rs 1,92,000 TDS but TDS CANNOT exceeds the last month (March 2023) rent amount (Rs 80,000).
Hence, Rs 80,000 TDS will have to be deducted by Mr. Saurabh in case Mrs. Jyoti does NOT furnishes her PAN.
(7). Consequences of NOT deducting or depositing TDS: If any person fails to deduct or deposit TDS, then he/she has to pay interest @ 1% per month or part thereof from the date on which TDS is actually deductible to the date when TDS is actually deducted.
If the person deducted the TDS but fails to deposit the TDS on time (on or before the 7th of next month, In March month – on 30th April), then he/she has to pay interest @ 1.5% per month or part thereof from the date of TDS deduction to the actual date when TDS is deposited.
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