Section 194IB TDS on Rent of Property

Extract of Section 194IB TDS on Rent of Property

(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 five 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 [or section 206AB], 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.

Analysis of Section 194IB of the Income Tax Act (TDS on Rent of Property)

1) Who is responsible to deduct tax  under section 194IB of Income Tax Act, 1961?

• Any person, being an individual or a Hindu undivided family (not covered under section 194I), responsible for paying to a resident any income by way of rent exceeding ₹ 50,000 for a month or part of a month during the previous year, shall deduct income-tax thereon at the rates in force.
• 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.
• TDS u/s 194IB is also required to be deducted by the person covered u/s 44AD and 44ADA whose turnover does not exceeds Rs. 1 Crore or Rs. 50 Lakhs, as the case may be.

2) When to Deduct TDS on rent of property under Section 194IB?

• The income-tax referred above 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) Rate of TDS under Section 194IB

• Rate of TDS is 5% should be deducted by the Tenant, Payer or Lessee at the time of making payment of rent to, Lesser, Landlord or Payee.
• The tax so deducted has to be deposited to the Government Account through online by any of the authorized bank branches.
• The provisions of section 203A relating to requirement of obtaining TAN shall not apply to a person required to deduct tax in accordance with the provisions of this section.
• In case, 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.

Amended in Finance Act 2021-

4) Other Points

• Challan-cum-statement in Form no. 26QC will have to be submitted.
• TDS certificate is to be issued in Form 16C by the person deducting tax within the specified due dates.
• TDS u/s 194IB is to be deducted only if payment is made to resident. In case rent is paid to non-resident owner, TDS u/s 194IB shall not be deducted.
• Tenant may be resident or non-resident. Both are liable to deduct TDS u/s 194IB.
• Rent paid by the tenant may be for residential or commercial purpose.
• TDS is to be deducted even if rent paid exceeds Rs.50,000 for only one month in a year. Example-Rent paid from April 2021 to January 2022 is Rs. 45,000 per month. Rent paid for February and March 2022 is Rs. 55,000 per month. TDS @ 5% is to be deducted on the whole amount i.e Rs. 5,60,000.

ILLUSTRATION-

Mr. A, a salaried employee, pays rent of Rs 72,000 per month to Mr. B Is he required to deduct Tax at source for the financial year 2020-21?

Mr. A pays rent exceeding Rs 50,000 per month in the financial year; therefore he is liable to deduct tax at source @5% of such rent. Thus, Rs 43200 (Rs 72000*5%* 12 months) has to be deducted from rent payable for March, 2021.

In above case if Mr. A vacated the premises on 30th November 2020, what will be his liability?

If Mr. Shan vacated the premises on 30th November 2020, then tax of Rs 28800 (Rs 72000*5%*8 months) has to be deducted from the rent payable for November 2020.

In above case if Mr. A vacated the premises on 31st March 2021, but Mr. B did not furnish his PAN, what will be his liability?

 If Mr. B does not provide his PAN to Mr. Shan then tax of ₹ 172800 (₹.72000*20%*12months) or rent of that month i.e.62000 whichever is less has to be deducted from the rent payable for March, 2021.

ILLUSTRATION-

Turnover of Mr. Chaman in F.Y. 2019-20 was Rs. 1.25 crores. In the F.Y. 2020-21, turnover was Rs. 80 Lakhs. He has paid rent of Rs. 60,000/- per month. Whether TDS will be deducted u/s 194I(b) or 194IB?

Answer: TDS u/s 194I(b) is to be deducted by an individual/HUF tenant, if his turnover/ gross receipts in the preceding F.Y. exceeds Rs. 1 crore. TDS is to be deducted at the rate of 10% if the rent paid during the year exceeds Rs. 2.40 Lakhs.

TDS u/s 194IB is to be deducted by an individual/ HUF tenant, if his turnover/ gross receipts in the preceding F.Y. are below Rs. 1 crore (Rs. 50 Lakhs in case of professional).

In the F.Y. 2020-21 TDS is to be deducted u/s 194I(b) as the turnover in the preceding Financial Year exceeds Rs. 1 crore.

In the F.Y. 2021-22, TDS u/s 194IB is to be deducted as the turnover in the preceding F.Y. is less than Rs. 1 crore.