TDS on rent - 194IB

Section 194IB - Payment of rent by certain individuals or Hindu undivided family.

An individual or HUF, not liable to audit under section 44AB, paying rent of more than Rs 50,000 per month is required to deduct TDS. Section 194IB of the Income-tax Act makes it mandatory for a tenant to withhold taxes at 2% w.e.f from 1st October 2024 (earlier it was 5%) on rental payments of over Rs. 50,000 per month (Refer Annexure 1 for bare text).

What is rent?

According to the section, rent means a payment made by a tenant under a tenancy, lease or rent arrangement, made for use of any land or building or both. It is to be noted that this includes residential property.

When to deduct?

TDS must be deducted, by the individuals or HUFs, earlier of:

• The time when rent is due (credit of rent) for the last month in the previous year (March) or the last month of the tenancy if the property is vacated before end of the year, or

• At the time of payment of rent (via cash or cheque or draft or any other mode) for the last month in the previous year (March) or the last month of the tenancy if the property is vacated before end of the year.

It must be noted TDS under this section is to be deducted only once in a financial year.

Rate of deduction

The tax rate applicable is 2% w.e.f from 1st October 2024 (earlier it was 5%) , in case the landlord’s PAN is provided. In case PAN is not available, then a TDS of 20% will be applicable.

What amount to deduct TDS on?

• The Tax is to be deducted on total rent if the rent is more than Rs. 50,000 per month through the year.

• In case the rent fluctuates to an amount of more than RS. 50,000 per month at any point during the year then tax is to be deducted on total rent paid during the months in which the rent was more than Rs. 50,000.

• If the rent agreement terminates during the year, then tax is to be deducted on total rent paid during the months in which the rent was more than Rs. 50,000.

When to pay the TDS?

The time limit for payment of this TDS is.

• on or before thirty days from the end of the month in which deduction is made.

• If the amount is credited or paid in March – on or before April 30.(if the property is not vacated)

• if the amount is credited or paid in a month other than March - on 30th date of the next month.(if the property is vacated)

How to pay?

The TDS deducted is to be paid to the government once per financial year. A challan-cum-statement, Form 26QC should be used to make this payment. Further, the tenant must provide Form 16C to the landlord as proof of the tax deposited. A tax deduction account number (TAN) is not necessary to make the transaction (Refer Annexure 2 for proper procedure).

Annexure 1

Payment of rent by certain individuals or Hindu undivided family.

194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to 97 per cent of such income as income-tax thereon.

(2) The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Explanation.—For the purposes of this section, "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

Annexure 2

Step 1: Open the URL, https://www.tin-nsdl.com/.

Step 2: Choose the option ‘TDS on Rent of Property’. A new window appears. Click on ‘Online form for furnishing TDS on property (Form 26QC)’.

Step 3: A page with the headline ‘e-Payment of Taxes’ will appear. Fill in the necessary details such as property details, tax deposit details, the amount paid, date of tax deduction, and landlord and tenant details.

Step 4: You can either pay the tax online immediately or visit an authorised bank for the same.

Step 5: Save the acknowledgement receipt of the payment for future references. You can download Form 26QC and print it for documentation purposes. Also, do not forget to provide Form 16C to the landlord as proof for tax payment. The landlord may use it while filing his taxes.

Disclaimer: This article is based on the information available as of December 24, 2024. The content reflects the author's interpretations of Section 194IB of the Income Tax Act. While every effort has been made to ensure the accuracy of the information, the author does not guarantee its completeness or reliability. Readers are advised to consult with a professional tax advisor for specific advice tailored to their individual circumstances.