TDS on Rent payment by Individuals / HUF – Tax Deduction at Source (TDS) Under Section 194-IB
Section 194-IB of the Income-tax Act, 1961, pertains to the deduction of tax at source (TDS) on rent payments made by individuals or Hindu Undivided Families (HUFs) who are not required to get their accounts audited under section 44AB.
Applicability
The provisions of Section 194-IB apply to individuals and HUFs who are not liable to audit under Section 44AB of the Income-tax Act. This section mandates these individuals and HUFs to deduct tax at source when paying rent to a resident.
Threshold Limit
The TDS under Section 194-IB is applicable if the monthly rent exceeds Rs. 50,000. This means that if the rent paid or payable for a month exceeds this threshold, the individual or HUF paying the rent must deduct tax at source.
Rate of TDS
The tax is required to be deducted at the rate of 5% of the rent amount. If the payee does not provide a PAN, the rate of TDS will be 20%.
Time of Deduction
According to Section 194-IB, the deduction of tax must be made at the earlier of the following two events:
- At the time of credit of rent: For the last month of the previous year or the last month of the tenancy if the property is vacated during the year.
- At the time of payment: At the time of payment in cash, cheque, draft, or by any other mode.
Deposit of TDS
The individual or HUF deducting tax under Section 194-IB is required to deposit the deducted amount with the government within 30 days from the end of the month in which the deduction is made. The deposit is to be made using Form 26QC.
Issuance of TDS Certificate
The deductor must issue a TDS certificate to the payee in Form 16C. This certificate should be issued within 15 days of the due date for furnishing the Challan-cum-statement in Form 26QC.
Non-Applicability
Section 194-IB does not apply to individuals or HUFs who are liable to deduct TDS under Section 194-I, which is generally applicable to those who are subject to audit under Section 44AB.
Penalties for Non-Compliance
Failure to comply with the provisions of Section 194-IB can lead to the following consequences:
- Interest: Interest is payable for failure to deduct tax or for delayed payment of tax to the government.
- Penalty: A penalty equivalent to the amount of tax not deducted or not paid may be imposed.
- Disallowance of Expense: The rent expense may be disallowed while computing income under the head “Profits and gains of business or profession” or “Income from other sources.”
Compliance and Reporting
Compliance with Section 194-IB ensures proper reporting and collection of tax revenue. It is crucial for individuals and HUFs making high-value rent payments to be aware of these requirements to avoid penalties and ensure smooth tax compliance.
Conclusion
Section 194-IB serves as an important provision to widen the tax base by bringing high-value rental transactions within the ambit of TDS. It ensures that taxes are collected at the source itself, thus reducing the scope for tax evasion. Individuals and HUFs paying rent above the specified threshold must adhere to these provisions to remain compliant with the Income-tax Act, 1961.
Latest Update :-
The Budget 2024 has proposed to reduce the TDS on rent under Section 194Ib from 5% to 2% w.e.f. 01.10.2024
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