Section 194B of Income tax Act 1961
An individual or HUF paying rent of more than Rs 50,000 per month is now required to deduct tax at source (TDS). The government recently introduced section 194IB in the Income-tax Act making it mandatory for a tenant to withhold taxes @ 5% on rental payments, over and above Rs. 50,000 per month and to deposit it within the prescribed time.
Earlier, only individuals and HUFs who were mandatorily required to have their accounts audited as per the tax laws were required to withhold tax on rental payments on the immovable property. However, with the introduction of this new section, all individuals and HUFs who are paying rent over and above Rs. 50,000 per month, would be mandatorily required to withhold tax from June 1, 2017.
The general thinking among people is that this process would just add to the overall complexity in the existing tax structure. However, the good news is that the government has tried to keep the process as simple as possible.
1. TDS only once annually
For instance, the tenant is required to deduct and deposit the taxes only once in a financial year, through a challan-cum-statement (Form 26QC), unless the tenancy ends during the course of the financial year.
2. Easy accessibility of TDS certificate, challans, forms
The tenant would also be required to issue a tax withholding certificate (Form 16C) to the landlord, as a proof that taxes have been deposited in his name. Form 26QC and Form 16C are expected to be available shortly on the TIN NSDL website and the Traces website of the Income tax department, respectively, in the coming months.
3. Tenant do not need TAN
Also, to keep it simple lawmakers have done away with the onerous requirement to obtain a tax deduction account number (TAN) for such transactions.
There are also interest and penalties prescribed for non- compliance of the newly-inserted law. Therefore, if a tenant fails to deduct tax at source he may be liable to pay interest and penalties as prescribed under the law.
The government's objective of introducing this section appears to be primarily to ensure that correct income is disclosed and both, tenant and landlord file their income tax returns to reflect true disclosures. With the quoting of the PAN for both landlord and the tenant, the Revenue department can easily track correct disclosures of rent in tax returns. Also, such taxes are likely to get reflected in the 26AS form of the landlord for claiming credit of the TDS.
Here are some common questions answered regarding TDS on rent above Rs 50,000 (as mandated under Section 194IB):
4. Who are covered under this section:
Individual and HUF’s whose accounts are not required to audited under the Indian tax laws.
5. What do they need to do:
Withhold tax/deduct tax at source from rent paid to resident landlords.
6. Income threshold:
Rent paid in excess of Rs. 50,000 per month or part of month.
7. Property covered:
Commercial and residential property
8. Tax applicability: 5%
9. The amount on which tax needs to be withheld: Total annual rent paid to the resident landlord
10. Is the landlord required to provide his PAN to the tenant?
Yes. In the absence of PAN or failure to provide the same, tax shall be withheld/deducted @20%. However, the overall tax in such a scenario shall be restricted to the rent payable for the last month of the financial year or tenancy whichever is earlier.
11. Whether taxes need to be deducted every month?
No, tax needs to be withheld/ deduct once in a financial year only, however where the property is vacated during the year, the tax needs to be deducted on the last day of the tenancy.
12. Whether the tenant needs to obtain tax deduction number?
13. How can the tenant deposit the taxes?
The tenant should fill a Form 26QC which is a challan-cum-statement.
14. When should tax withheld be deposited?
Within 30 days from the end of the month in which the deduction was made.
15. Whether the tenant needs to give any proof of TDS/taxes withheld to the landlord?
Tenant needs to issue a TDS/ tax paid certificate (Form 16C) to the landlord as proof of taxes deducted. It is to be issued within 45 days from the end of the month in which the tax was deducted.
16. Where would the Forms (26QC and 16C) be available?
Form 26QC shall shortly be available on the TIN NSDL website of the Income-tax department in the coming months.
Form 16C shall shortly be available on the TRACES website of the Income-tax department in the coming months.
17. What is the penalty for non-deduction of tax or delay in deposit of taxes withheld?
For, non deduction of tax, the tenant may be required to pay a penalty equal to the amount of taxes not withheld.
If the tenant delays in the deposit of taxes withheld, he may be liable to pay penal interest at the rate of 1% where there is delay in deducting and depositing the tax or 1.5% per month where tax is deducted but there is a delay in depositing the same
18. Whether there is any penalty for delay in filing of Form 26QC and issuing Form 16C?
Delay in filing of Form 26QC may attract a late fee of Rs. 200 per day.
Also there may be consequential penalties for non filing
For delay in issuing Form 16C, the penalty is Rs. 100 per day.