Section 194-IB and Section 194-IC of the Income Tax Act: Know the Essentials
The Income Tax Act's Section 194-IB addresses the tax withheld from rent payments at the source. To put the "Joint development agreement" of real estate under TDS's jurisdiction, Section 194-IC was introduced. An agreement between the asset's owner and the developer is known as a joint development agreement. In this article, we will explain both these sections of the Income Tax Act in detail.
Table of content
What is Section 194-IB of the Income Tax Act?
Any person, including individuals and HUFs exempt from audit under Section 44AB, must withhold taxes from rent payments to residents for amounts above Rs 50,000 per month in accordance with Section 194-IB. Therefore, if the rent being paid exceeds Rs 50,000 per month, any individual (including members of the salaried class) is subject to deduct TDS @ 5%. It has been suggested that this rate be lowered to 2% starting on October 1, 2024. As per the clause, rent refers to the amount paid by the payee under a lease, sublease, tenancy, or any other agreement formed for assets like:
Land and building, including a factory building
Plant
Equipment
Machinery
Furniture
Fittings
Notably, the payee may or may not own the aforementioned assets.
Rate and Time of Tax Deduction under Section 194-IB
The tax deduction rate is 5%; if the recipient's PAN is unavailable, the rate will be 20% per Section 206AA; alternatively, if the rent recipient is an individual designated under Section 206AB, the deduction rate will be 10%. TDS, however, is limited to the amount of rent paid for the previous month. The tax deduction period begins at the earlier of the following:
The period of rent credit (for the final month of the prior year, or the final month of the lease, if the property is abandoned before or during the year), or
When payment is made (cash, cheque, draft, or any other method).
Also, TDS is not required if rent payments total less than Rs. 50,000 per month (or a portion of that amount). TAN is not necessary to deduct TDS under this clause.
What is Section 194-IC of the Income Tax Act?
The purpose of Section 194-IC, which was just implemented, is to include rent in joint development agreements. Accordingly, under Section 194 IC, TDS must be subtracted from any payment made to a resident as part of a joint development agreement. It is a contract whereby the asset's owner grants permission to someone else to develop a real estate project on the asset in exchange for a monetary payment or share.
A registered contract between a promoter and a property owner allows for the construction of new projects on the landowner's property under the terms of the joint development agreement. The legal construction work is carried out by the promoter in accordance with this agreement. In addition, the landowner grants the agreement that they will receive payment for the land either in cash or in the form of property shares.
Rate and Time of Tax Deduction under Section 194-IC
The tax deduction rate is 10%; if the recipient's PAN is unavailable, the rate is 20%. The earlier of the credit of income to the payee's (receiver's) account or the actual payment (in cash, cheque, draft, or other forms) is when taxes are deducted. Furthermore, there is no threshold (or exemption) limit in this section.
Time Limit for TDS Deposits
The deadline for TDS deposits in cases other than those involving the government, payments must be made on or before the seventh day after the conclusion of the month in which the deduction is made, and taxes must be paid using an income-tax challan. if the money is credited or paid by March 30th, at the latest. In all other circumstances, the deduction must be done on or before seven days following the end of the month in question. The deadline for making a payment using the challan cum statement in Form 26QC is if the amount is subtracted under section 194IB. In cases where the government makes the payment, TDS is to be deposited on the same day (without utilising a challan form).
Mode and Frequency of TDS Payment on Rent
Once a financial year, tenants are required to withhold and pay the tax to the government. For example, tenants must withhold TDS from their rent in March or during their final month of tenancy. To make this payment, use Form 26QC, the challan-cum-statement. In addition, as evidence of the tax deposited, the renter is required to give the landlord Form 16C, a TDS certificate. To complete the transaction, a tax deduction account number (TAN) is not required.
Steps to Pay TDS under Section 194-IB Online
Step 1: Open your income tax portal and log in.
Step 2: Select E-file >> E-Pay Tax after logging in.
Step 3: Choose New Payment >> 26QC (TDS on Property Rent).
Step 4: Complete the tenant's information. Add the address and PAN of the landlord. Give information about the rent that has been paid and the TDS deduction. Once you have supplied the aforementioned information, continue with the tax payment. Add the length of the lease, the amount of the rent, and any other pertinent information.
Step 5: Save the payment acknowledgement number for your records when it has been submitted. Form 26QC is available for download and printing for documentation needs. Additionally, remember to give the landlord Form 16C as verification of your tax payment. It can be used by the landlord when he files his taxes.
The TRACES site is the only place where Form 16C may be downloaded. As a taxpayer, you must register and log in. You can obtain Form 16C generation requests, which will eventually be available in Requested Download.
Penalty for Delay or Non-Deduction of TDS
Section 201(1A): For delayed TDS deduction or payment Late Deduction, interest will be charged if TDS is withheld beyond the deadline. The rate is 1% each month or portion thereof regarding the total TDS as of the tax deduction date until the day on which the tax is subtracted. For overdue payments, there will be interest charged if TDS has been taken out but not deposited. It is 1.50% each month or for a portion of the amount of TDS as of the TDS deduction date up until the day of the TDS deposit.
Section 234E: Section 234E stipulates that late fines are due in the following situations. The tax deductor neglects to provide the TDS statements by the deadlines specified or they neglect to provide the TCS statements by the deadlines specified. The daily penalty under this section is Rs. 200.The deductor will continue to compute the penalty until the failure is resolved. Nevertheless, the penalty cannot exceed the whole amount of TDS for which a return must be submitted.
Conclusion
TDS regulations are extremely vast and difficult to comprehend unless they are made simpler. We hope that you now have a better understanding of Sec. 194-IB after reading our blog. We added an infographic that distinguished between 194-I and 194-IB to further aid in understanding. We kindly ask that you abide by all regulations if you are in any way subject to the restrictions of Section 194-IB in order to avoid receiving any form of notification, penalty, etc. Experts are another resource you can use if you require any additional help.
FAQ
Q1. Who deposits TDS on rent?
The rent payer will withhold TDS from the rent payment and deposit it with the government.
Q2. When should TDS under section 194-IB be deducted?
For individuals and HUF who pay rent exceeding Rs 50,000 (those who are not covered u/s 194I), TDS under section 194IB is applicable. Such TDS must be withheld in March and submitted or lodged by the thirty-first day of the following month, that is, by the thirty-first day of April.
Q3. Is there any exemption for the TDS levied under Section 194-IB?
Rent payments under TDS u/s 194IB are only applicable if the monthly rent exceeds Rs 50,000. Consequently, you must deduct TDS and submit Form 26QC if the rent is less than Rs 50,000.
Q4. What is the TDS rate for Section 194-IB?
If the rent payment exceeds Rs 50,000 per month or a portion of a month and the landlord provides a PAN, the appropriate tax rate is 5%. If PAN is not available, a 20% TDS will be used instead.
Q5. What is the TDS limit for Section 194-IC?
The person making the payment will withhold 10% of TDS from any payment made in accordance with the stipulated agreement (JDA).
Q6. What is the TDS rate for Section 194-IC under the latest update?
The rate is lowered from 5% to 2% as of October 1, 2024, according to the Budget 2024 update. TDS on payments under joint development agreements is covered by Section 194-IC. If PAN is not accessible, TDS rates are 20%. 10% TDS rates apply under Section 194-IC.
Q7. How to deduct TDS under section 194-IB?
For rent paid by individuals or HUF over Rs 50,000 per month, TDS under section 194IB is applied. Such TDS must be paid by April 30th after being deducted in March of the relevant fiscal year.
Q8. What happens if the tenant does not deduct TDS?
Tenants who are Individuals or HUFs and pay rent over Rs. 50,000 per month are required by Section 194-IB to deduct TDS. If the tenant fails to file Form 26QC and deduct TDS, they will be assessed a penalty of Rs. 200 each day for late filing in addition to interest at the rate of 1% per month.
Q9. Who is required to deduct TDS under Section 194-IB?
Any individual or HUF paying rent of more than ₹50,000 per month to a resident landlord is required to deduct TDS under Section 194-IB, even if they are not liable to tax audit.
Q10. How much TDS needs to be deducted under Section 194-IB?
The TDS rate under Section 194-IB is 5% of the rent paid, which must be deducted and deposited with the government.
Q11. What is the TDS rate under Section 194-IC?
The TDS rate under Section 194-IC is 10% on any monetary consideration paid to a landowner under a joint development agreement.
Q12. When should TDS be deducted under Section 194-IB?
TDS under Section 194-IB should be deducted at the time of crediting the rent for the last month of the financial year or the last month of the tenancy, whichever is earlier.
Q13. How is TDS deposited for Section 194-IB without a TAN?
Tenants can deposit the TDS using Form 26QC without requiring a TAN. The payment can be made online or offline within 30 days from the end of the month in which the TDS is deducted.
Q14. What are the consequences of not deducting TDS under Section 194-IC?
Failure to deduct TDS under Section 194-IC can lead to penalties, including interest on the default amount and disallowance of expenses under Section 40(a)(ia).
Q15. Is the landlord required to file any form after TDS deduction under Section 194-IB?
No, it is the tenant's responsibility to deduct TDS, file Form 26QC, and issue Form 16C to the landlord as proof of TDS deduction.
Q16. How does Section 194-IC affect the tax liability of landowners in a joint development agreement?
The TDS deducted under Section 194-IC is credited to the landowner's account and can be claimed as a tax credit against their total tax liability during income tax filing.
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