Section 194IA TDS on property transactions vs TDS on rental income under Section 194I
- Bhavika Rajput
- May 13
- 10 min read
Updated: May 15
TDS under Section 194IA and Section 194I of the Income Tax Act governs different property-related payments. These sections play a crucial role in ensuring that taxes are deducted at source during property transactions and rental payments. With recent updates in Budget 2024 for FY 2024-25, understanding these changes is essential for taxpayers, property buyers, and landlords. Let us conduct a comprehensive comparison to clarify both the provisions, including their thresholds, TDS rates, and recent amendments.
Table of Contents
What is Section 194IA TDS on property transactions vs TDS on rental income under Section 194I?
Section 194IA applies to TDS on property transactions, specifically when purchasing immovable property for a consideration of ₹50 lakh or more, while Section 194I covers TDS on rental payments exceeding ₹2.4 lakh annually. The key difference lies in their scope, 194IA applies to buyers in property transactions, while 194I is focused on tenants paying rent. Furthermore, the TDS rates and compliance requirements differ, with Section 194IA being applicable at a flat 1% rate, and Section 194I varying based on whether the rent is paid to residents or non-residents.
Applicability of Section 194IA and Section 194I
The applicability of Section 194IA and Section 194I under the Income Tax Act governs the deduction of tax at source (TDS) on property-related payments in India. However, both sections serve different purposes and apply to distinct types of transactions.
Section 194IA: TDS on Property Transactions
Section 194IA applies to TDS on property transactions, specifically when a buyer purchases immovable property (land or buildings, excluding agricultural land) from a resident seller. The section is triggered if the sale consideration paid for the property is ₹50 lakh or more. The buyer is responsible for deducting TDS on the total sale consideration paid to the seller, which includes any additional charges like maintenance fees, parking fees, or club membership charges.
This section was introduced to ensure that taxes are collected on high-value property transactions at the time of purchase. The TDS is deducted by the buyer, even if there are multiple buyers or sellers involved in the transaction. The aggregate sale consideration paid by all buyers, or received by all sellers, is considered when determining whether the ₹50 lakh threshold is met.
Section 194I: TDS on Rental Income
Section 194I, on the other hand, pertains to TDS on rental income. It applies to individuals or entities who make payments towards rent for land, building, machinery, or furniture. The tenant (payer of rent) is required to deduct TDS if the annual rent paid exceeds ₹2,40,000 in FY 2024-25. For FY 2025-26, the threshold has been increased to ₹6,00,000. This section aims to collect taxes on rental income and applies to both residential and commercial properties.
Exemptions under Section 194I exist for individuals or Hindu Undivided Families (HUFs) not subject to tax audit, provided their total rent paid does not exceed the prescribed threshold. Additionally, the TDS rate differs based on whether the payment is made to a resident or a non-resident.
TDS Rates for Property Transactions and Rental Income
The TDS rates for property transactions and rental income are determined based on the type of payment and the status of the recipient. Let’s break down the TDS rates under both sections:
TDS Rate under Section 194IA
TDS Rate for Property Transactions:Under Section 194IA, the TDS rate on the purchase of immovable property is 1% of the total sale consideration. If the seller does not provide their PAN details, the TDS rate increases to 20%.
Example: If a buyer purchases property worth ₹60 lakh and the seller provides their PAN, the TDS deducted will be ₹60,000 (1% of ₹60 lakh). If the seller does not provide a PAN, the TDS will be ₹1,20,000 (20% of ₹60 lakh).
TDS Rate under Section 194I
TDS Rate for Rental Income:The TDS rates under Section 194I are as follows:
For Rent Paid to Residents: The TDS rate is 10% on annual rent payments exceeding ₹2,40,000 in FY 2024-25 (₹6,00,000 for FY 2025-26).
For Rent Paid to Non-Residents: The TDS rate is 30%, with an additional surcharge and cess.
Section 194-IB: For individuals or HUFs not subject to tax audit and paying monthly rent exceeding ₹50,000, the TDS rate is 5% (which will reduce to 2% from October 1, 2024).
The rate is fixed at 10% for rental payments to residents, but it can rise significantly (up to 30%) for non-resident landlords, which reflects India's effort to collect taxes more efficiently from international landlords.
Thresholds and Payment Timings
The thresholds for TDS deduction and the timings of payment vary between Section 194IA (property transactions) and Section 194I (rental income). Let’s take a detailed look at the differences:
Threshold and Payment Timings for Section 194IA
Threshold: Section 194IA is applicable when the total sale consideration paid for the property is ₹50 lakh or more.
Timing of Deduction: The TDS must be deducted at the time of payment or credit (whichever comes first) to the seller. In cases where the property is paid in installments, the TDS should be deducted on each installment payment.
Payment Timing: The buyer is required to deposit the TDS using Form 26QB within 30 days from the end of the month in which the TDS is deducted. The buyer is also obligated to issue a Form 16B to the seller as a TDS certificate.
Threshold and Payment Timings for Section 194I
Threshold: Section 194I applies when the annual rent paid exceeds ₹2,40,000 for FY 2024-25 (₹6,00,000 for FY 2025-26). For individuals or HUFs paying monthly rent exceeding ₹50,000, TDS under Section 194-IB applies.
Timing of Deduction: The TDS must be deducted at the time of payment or credit of rent to the landlord.
Payment Timing: For payments made by individuals/HUFs not subject to tax audit, the TDS is deducted once annually on the total rent paid for the year, and the deduction is made under Section 194-IB if the monthly rent exceeds ₹50,000.
Form for TDS Deposit: The TDS for rental payments is deposited using Form 26QC, and the payer issues a Form 16C as a TDS certificate.
Recent Amendments from Budget 2024 & 2025
The amendments introduced in Budget 2024 and the subsequent changes for FY 2025-26 brought several clarifications and updates to the application of TDS under Section 194IA and Section 194I.
Key Amendments under Section 194IA
Clarification on Aggregate Sale Consideration: Budget 2024 clarified that the aggregate sale consideration from all buyers or to all sellers is considered for determining the ₹50 lakh threshold. This eliminates loopholes where buyers or sellers split transactions to avoid TDS deductions.
No Change in TDS Rate: The TDS rate of 1% for property transactions under Section 194IA remains unchanged, but if the seller fails to provide their PAN details, the rate increases to 20%.
Key Amendments under Section 194I
Increase in Rent Threshold: The threshold for TDS deduction on rental income has been increased from ₹2,40,000 to ₹6,00,000 for FY 2025-26, reducing the number of tenants required to deduct TDS.
Change in Section 194-IB: Effective from October 1, 2024, the TDS rate under Section 194-IB, applicable to individuals/HUFs not liable for tax audits and paying rent exceeding ₹50,000 monthly, will reduce from 5% to 2% to simplify compliance.
Key Differences Between Section 194IA and Section 194I
Feature | Section 194IA (Property Purchase) | Section 194I (Rental Income) |
Nature of Payment | One-time payment for property purchase | Recurring rent payments for land/buildings/furniture/machinery |
Threshold | ₹50 lakh or more (aggregate amount) | ₹2,40,000 annual rent (₹6,00,000 from FY 2025-26) |
TDS Deductor | Buyer of property | Tenant (payer of rent) |
TDS Rate | 1% (20% if PAN not provided) | 10% for residents, 30% for NRIs |
Form for TDS Deposit | Form 26QB | Form 26QC |
TDS Certificate | Form 16B (to seller) | Form 16C (to landlord) |
Timing of Deduction | At the time of payment/credit for each installment | At the time of payment/credit of rent |
Practical Example of TDS Application
Property Purchase Example
Imagine two buyers purchase a property worth ₹80 lakh (₹40 lakh each). Since the aggregate sale consideration exceeds ₹50 lakh, both buyers are required to deduct 1% TDS on their respective ₹40 lakh payments. Thus, each buyer will deduct ₹40,000 as TDS on their payment.
Rental Income Example
An individual rents a property and pays ₹60,000 per month. The annual rent exceeds ₹2,40,000, triggering TDS under Section 194I. If the rent is paid to a resident landlord, the TDS will be 10% of the annual rent (₹7,20,000), which amounts to ₹72,000. For a non-resident landlord, the rate would be 30%, making the TDS ₹2,16,000.
Conclusion
Understanding the differences between TDS on property transactions under Section 194IA and TDS on rental income under Section 194I is essential for ensuring compliance with the Income Tax Act. The thresholds, TDS rates, and timing for deduction vary, and staying updated on the latest amendments from Budget 2024 and 2025 will help taxpayers avoid penalties and ensure smooth income tax filing. Both sections aim to streamline the taxation process for property-related payments and ensure that taxes are collected at the source.
Frequently Asked Questions(FAQs)
Q1. What is the threshold for TDS deduction under Section 194IA?
The threshold for TDS deduction under Section 194IA applies when the total sale consideration paid for immovable property is ₹50 lakh or more. This includes any additional charges such as maintenance, parking fees, and club membership fees. If the total sale consideration exceeds ₹50 lakh, the buyer is required to deduct 1% TDS on the entire transaction amount at the time of payment or credit. If multiple buyers are involved in the property purchase, the aggregate sale consideration of all buyers is considered to determine whether the threshold is met.
Q2. What are the TDS rates applicable under Section 194I?
Under Section 194I, the TDS rate on rental income depends on the nature of the rental payment and the residency status of the landlord:
For rent paid to residents: The TDS rate is 10% if the annual rent exceeds ₹2,40,000 for FY 2024-25 (this threshold will increase to ₹6,00,000 for FY 2025-26).
For rent paid to non-residents: The TDS rate is 30%, plus applicable surcharge and cess.
For individuals/HUFs not subject to tax audits: When the monthly rent exceeds ₹50,000, TDS under Section 194-IB applies at 5% (this will reduce to 2% from October 1, 2024). This is deducted annually on the total rent paid during the year.
Q3. How does the Budget 2024 affect Section 194IA?
The Budget 2024 introduced a clarification regarding the aggregate sale consideration for TDS under Section 194IA. The clarification specifies that the aggregate sale consideration paid by multiple buyers or received by multiple sellers is considered for the ₹50 lakh threshold. This prevents taxpayers from splitting transactions to avoid TDS deductions. The TDS rate remains 1%, and if the seller does not provide their PAN, the TDS rate increases to 20%.
Q4. Is TDS deducted monthly or annually under Section 194I?
TDS under Section 194I for rental income is deducted at the time of payment or credit, whichever comes first. If rent is paid monthly, TDS will be deducted each month, provided the annual rent exceeds ₹2,40,000. For individuals/HUFs not subject to tax audits, the TDS is deducted annually under Section 194-IB if the monthly rent exceeds ₹50,000.
Q5. When should TDS be deposited under Section 194IA?
TDS under Section 194IA should be deposited within 30 days from the end of the month in which the TDS was deducted. For example, if the TDS was deducted in March, the payment must be deposited by April 30th. The buyer must use Form 26QB to deposit the TDS and issue Form 16B as a TDS certificate to the seller.
Q6. Can non-residents be subject to different TDS rates under Section 194I?
Yes, non-residents are subject to a higher TDS rate under Section 194I. If rent is paid to a non-resident landlord, the TDS rate is 30%, plus applicable surcharge and cess. This is significantly higher than the TDS rate of 10% for residents. This higher rate reflects the government's intention to ensure proper tax collection from foreign entities receiving rental income in India.
Q7. How is the TDS under Section 194IA different when multiple buyers are involved?
When multiple buyers are involved in the property transaction, the aggregate sale consideration from all buyers is considered to determine whether the ₹50 lakh threshold for TDS is met. If the combined total of all buyers exceeds ₹50 lakh, each buyer is required to deduct 1% TDS on their portion of the sale consideration. This ensures that the threshold is met and TDS is deducted correctly, even if the transaction is split across multiple buyers.
Q8. What is the impact of the new TDS rate under Section 194-IB for HUFs and individuals?
Section 194-IB specifically applies to individuals and HUFs who are not subject to tax audits and pay monthly rent exceeding ₹50,000. The TDS rate under this section was initially 5% but will reduce to 2% starting from October 1, 2024, as per the latest Budget 2024 update. This reduction in rate aims to simplify compliance for smaller taxpayers and individuals who are not subject to a tax audit.
Q9. Can the TDS rate under Section 194IA change if the PAN is not provided by the seller?
Yes, if the seller does not provide their Permanent Account Number (PAN), the TDS rate under Section 194IA increases from 1% to 20%. This is a measure to ensure that taxpayers who do not comply with PAN submission are still subject to a higher deduction rate, thus protecting the government's tax collection. Sellers are encouraged to provide their PAN to avoid the higher deduction rate.
Q10. How does the TDS process work under Section 194I for rental payments?
Under Section 194I, the tenant (payer of rent) is responsible for deducting TDS on the rental payments made to the landlord. The TDS is deducted at the time of payment or credit (whichever comes first) of rent. If the total rent exceeds ₹2,40,000 annually (₹6,00,000 from FY 2025-26), TDS is deducted at 10% for residents and 30% for non-residents. The tenant deposits the TDS using Form 26QC and issues Form 16C to the landlord as a TDS certificate.
Q11. What happens if the TDS is not deducted under Section 194IA?
If the buyer fails to deduct TDS under Section 194IA, the transaction will not be considered compliant with the tax provisions. The buyer may be subject to penalties, interest, and legal action for non-compliance. In addition, the seller may face difficulties in getting the sale considered as valid for tax purposes. Therefore, it is important for the buyer to deduct and deposit the TDS within the prescribed timeline to avoid complications.
Q12. Are there any special provisions for TDS on property transactions involving agricultural land?
Agricultural land is specifically excluded from the scope of Section 194IA. Therefore, if the transaction involves the purchase of agricultural land, TDS under Section 194IA does not apply. However, if the property transaction involves non-agricultural land or buildings, TDS will be applicable if the total sale consideration exceeds ₹50 lakh. Agricultural land transactions are governed by different tax provisions and are not subject to TDS under this section.
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