When should TDS be deducted under Section 194-IB?

TDS under Section 194-IB applies to individuals and HUFs who pay rent over ₹50,000 (and are not covered under Section 194I). The TDS should be at the time of credit or payment of rent, whichever is earlier, in the last month of the financial year. If the tenancy ends before, it should be deducted in the last month of tenancy.

As a salaried individual paying ₹60,000 in monthly rent, am I required to deduct TDS under Section 194-IB?

Yes, any resident individual paying rent exceeding ₹50,000 per month on property is required to deduct TDS under Section 194-IB.

Are there any exemptions from TDS under Section 194-IB?

TDS under Section 194-IB only applies if the rent is more than ₹50,000 monthly. If the rent is less, there’s no TDS requirement, and Form 26QC filing is not needed.

What is the TDS rate for Section 194-IC?

Payments made under a Joint Development Agreement (JDA) require a TDS deduction of 10%.

How do I deduct TDS under Section 194-IB?

TDS under Section 194-IB applies to rent payments by individuals or HUFs exceeding ₹50,000 monthly. The deduction should occur in March of the financial year, with payment due by April 30.

What if the tenant does not deduct TDS?

If a tenant fails to deduct TDS under Section 194-IB on rent exceeding ₹50,000, they face an interest charge of 1% per month and a late filing fee of ₹200 per day for not filing Form 26QC.

Can the tenant adjust the TDS amount against future rent payments?

The TDS amount deducted cannot be adjusted against future rent payments unless both parties mutually agree. The tenant, however, remains bound by the rules of TDS per the concerned financial year and cannot carry forward or adjust TDS meant for one period against another. In case there is an over deduction , the landlord is entitled to claim a refund at the time of return filing.

Can the tenant claim a deduction for the TDS amount (the money deducted) when assessing their own taxable income?

No, the tenant is not allowed to claim a rent TDS deduction while calculating their own taxable income. The TDS deducted under Section 194-IB is not an expense for the tenant. It is a lawful requirement deducted on behalf of the landlord and deposited with the government.

Section 194IB of Income Tax: TDS on Rent Payments

Section 194IB of the Income Tax Act governs the Tax Deducted at Source (TDS) on rent payments for resident individuals and Hindu Undivided Families (HUFs) who are not liable for tax audits. Introduced to curb tax evasion and ensure compliance, this provision mandates tenants to deduct tax on rent payments exceeding ₹50,000 per month at the time of payment of rent or credit, whichever is earlier, for the last month of the financial year or the last month of tenancy, if tenancy ends before the financial year ends.

It directly impacts those renting properties, adding a layer of tax compliance and accountability. Let’s explore the important elements of this section, including requirements, penalties, exemptions, and common questions.

Key Takeaways

Section 194IB requires non-audit individuals and HUF tenants to deduct 2% (5% for periods before October 1, 2024) TDS on monthly rent exceeding ₹50,000 and deposit it via Form 26QC.

TDS must be deducted in the last month of the financial year or tenancy, if the property is vacated before the year ends. Delays can lead to interest, penalties, and daily late-fee charges.

Section 194IB differs from Section 194I through its lower threshold, single annual deduction, no TAN requirement, and Form 16C issuance.

Online TDS payment under Section 194IB involves filing Form 26QC, validating PANs, completing e-payment, and issuing Form 16C to landlords.

What is Section 194IB?

Section 194IB specifies that individuals or HUFs paying rent over ₹50,000 per month must deduct TDS at a rate of 2% (5% for periods before October 1, 2024) on the rental amount. This obligation primarily applies to tenants not subject to tax audits, ensuring that tax deductions are appropriately captured and remitted.

Who Needs to Comply?

The compliance requirement primarily targets individuals and HUFs who pay rent exceeding ₹50,000 per month and whose accounts are not liable to be audited under clause (a) or clause (b) of section 44AB during the preceding financial year. Entities liable for tax audits, such as corporations and larger business units, are excluded from this section as they are governed by Section 194I. Section 194IB focuses on smaller rent-paying entities, expanding the tax net for comprehensive compliance.

Rent Payments and TDS Under Section 194IB

Section 194IB defines "rent" as any payment, by whatever name called, for the use of any land or building or both. This includes payments for various asset types, covering:

Land or buildings, including both residential and commercial properties.

Section 194IB is limited to rent for land or buildings. Even if the payee does not own the property outright, the rent paid remains subject to TDS provisions.

Key Points of Compliance

To ensure timely compliance with Section 194IB, the following condition must be met:

TDS is deductible at the time of credit of rent or payment, whichever is earlier, in the last month of the previous financial year. If the tenancy ends before the FY ends, TDS is to be deducted in the last month of the tenancy.

Timeline for TDS Payment and Return Filing

TDS must be deposited using Form 26QC within 30 days from the end of the month in which the deduction is made. Failure to comply with these deadlines can lead to interest and penalties, underscoring the importance of timely submission.

TDS Rate for Section 194IB

The TDS rate under Section 194IB is set at 2% (5% for periods before October 1, 2024) for rent payments exceeding ₹50,000 per month, provided the landlord has furnished a Permanent Account Number (PAN). In cases where the landlord’s PAN is unavailable, a higher TDS rate of 20% is applied, subject to the condition that the amount of TDS should not exceed the amount of rent payable for the last month of the previous year or the last month of tenancy. This differentiation incentivises tenants to obtain the landlord’s PAN, ensuring a lower tax deduction rate.

For example, if a tenant’s monthly rent is ₹60,000:

With PAN, TDS would be 2% (5% for periods before October 1, 2024) of the total annual rent payable, amounting to the tax liability over the period. This would make the TDS to ₹14,400 (₹7,20,000 x 2%).

Without PAN, TDS would rise to 20%, capped at the last month's rent. So, the TDS would be ₹1,44,00 but since it is capped at the previous month’s rent, it would be ₹60,000.
Therefore, obtaining the PAN from landlords is essential to avoid an elevated tax burden.

Therefore, obtaining the PAN from landlords is essential to avoid an elevated tax burden.

Penalties for Non-Compliance

Failure to comply with Section 194IB results in various penalties, designed to ensure prompt and accurate TDS deductions. Key penalties include:

Interest on late deduction: For late deduction, a 1% interest per month is levied from the date on which such tax was deductible until the deposit is completed.

Interest on late deposit: If TDS is deducted but not deposited, a 1.5% interest per month applies from the date of deduction until the deposit is completed.

Penalty for delayed TDS return: Delays in filing Form 26QC incur a penalty of ₹200 per day, capped at the total TDS amount.

Comparison Between Section 194I and Section 194IB

Understanding the differences between Section 194I and Section 194IB helps taxpayers discern their specific compliance obligations. Here’s a comparative breakdown:

Aspect	Section 194I	Section 194IB
Applicability	All taxpayers other than those covered under 194IB, including individuals and HUFs liable for tax audits	Non-tax-audited resident individuals and HUFs
Deduction Timing	At the time of credit or payment, whichever is earlier	Once a year, at the end of the tenancy or the financial year.
TDS Rate	10% on land, building, and furniture; 2% on plant and machinery	2% on rent for land or building (5% for periods before October 1, 2024).
Monetary Limit	₹50,000 per month (₹6,00,000 annually) effective April 1, 2025	₹50,000 per month
TAN Requirement	Yes	No
TDS Certificate	Form 16A	Form 16C
TDS Return	Form 26Q	Form 26QC

Exemptions and Additional Considerations

Section 194IB only applies when rent payments exceed ₹50,000 per month. If rent payments are below this threshold, tenants are exempt from deducting TDS. Additionally, this section does not cover payments for rent of land or building or both, regardless of whether it is residential or commercial property, but only if the tenant is an individual/HUF not liable for tax audit.

These exemptions streamline the provision, focusing on high-value residential transactions rather than business or industrial leases.

Filing Process of TDS Return: Form 26QC

To comply with Section 194IB, tenants must file Form 26QC within the designated period. This form records the TDS details and ensures official documentation for tax records. Here’s the process:

Access the TRACES Website: Log in to the TDS Reconciliation Analysis and Correction Enabling System (TRACES) website.

Complete Form 26QC: Fill out the required details, including tenant and landlord PANs, TDS amount, rental amount, and payment date.

Pay TDS: Make the payment online through the Income Tax Department’s portal.

Issue Form 16C to the Landlord: After payment, issue Form 16C as a TDS certificate to the landlord within 15 days of filing Form 26QC.

Know More About TDS Traces

Online TDS Payment Procedure Under 194-IB

Under section 194IB, the payment of TDS online is a one-time procedure designed for tenants who must deduct TDS on rent payments. Under 194IB, tenants are required to deduct 2% (5% for periods before October 1, 2024) TDS on monthly rent over ₹50,000 and pay it to the government using Form 26QC. The online process is entirely computerised and does not need a TAN.

Online TDS Payment Steps under Section 194-IB:

Go to the Income Tax e-Filing Portal.

Go to e-Pay Tax and then New Payment.

Click on 26QC this TDS on Rent of Property (Section 194-IB).

Enter the details of the tenant and landlord, the amount of rent, and the TDS amount.

Cheque PAN information with auto-validation.

Select mode of payment- Net Banking, Debit Card, or NEFT/RTGS.

Make a full payment and download the Form 26QC acknowledgement.

Issue and prepare Form 16C after payment to the landlord.

Conclusion

Section 194IB of the Income Tax Act holds significant importance for individual and HUF tenants paying high-value rent. By requiring a straightforward 2% (5% for periods before October 1, 2024) TDS deduction on rent exceeding ₹50,000 per month, it ensures tax compliance across a broader taxpayer base.

Whether you're a tenant or landlord, knowing your obligations under Section 194IB ensures smooth, penalty-free transactions. Familiarise yourself with these rules, as compliance safeguards you from interest charges, penalties, and complications in the TDS filing process.

Section 194IB of Income Tax