TDS on Rent under Income Tax Act: A Comparative Study of Section 194-IB and Section 194-I
Section 194-IB of the Income Tax Act requires a person to deduct TDS when paying high rent to a landlord. If an individual or HUF pays rent of more than Rs 50,000 per month, they must deduct tax at source before making the payment to the landlord. This rule applies even to salaried individuals who are paying rent and claiming House Rent Allowance (HRA).
Applicability of Section 194IB (TDS on Rent)
This section applies to individuals or Hindu Undivided Families (HUF) who do not need a tax audit under the Income Tax Act.
TDS Rate: TDS must be deducted at 2% of the rent (earlier 5%, reduced to 2% with effect from 1 October 2024).
When to deduct TDS: TDS should be deducted whichever happens earlier.
- When the rent for the last month of the financial year is recorded in the books, or at the time of making the payment.
- If the tenant vacates the property during the year, TDS is deducted from the rent of the last month of tenancy.
TAN (Tax Deduction Account Number) requirement: The person deducting TDS does not need to obtain a TAN (Tax Deduction Account Number) for this section.
Form for payment and return:
- TDS must be reported using Form 26QC.
- This form is PAN-based. It must be filed within 30 days from the end of the month in which TDS is deducted, along with the payment (challan).
TDS Certificate:
- The certificate given to the landlord is Form 16C.
- It must be issued within 15 days from the due date of filing Form 26QC.
Interest for Delay:
- 1% per month will be imposed if TDS is not deducted.
- 1.5% per month will be imposed if TDS is deducted but not deposited with the government
Key Differences Between Section 194IB and 194I
| Particular | Section 194-IB | Section 194-I |
| Applicable to | Individual/HUF not liable for tax audit | Companies, firms, governments, and individuals/HUF are liable to tax audits. |
| Rent threshold | Rs 50,000 per month | Increased to Rs 50,000 per month (Starting from 01/04/2025) |
| TDS Rate | 2% | 10% for land/building/furniture, 2% for plant & machinery |
| TAN | Not required | Mandatory |
| TDS return | Form 26QC | Form 26Q |
| TDS certificate | Form 16C | Form 16A |
| Deduction timing | Last month of FY or tenancy | Every month at payment/credit |
Penalty for Late Filing:
- There is a Rs 200 per day penalty if the return (Form 26QC) is filed late.
- The maximum penalty cannot exceed the amount of TDS.