Section 194-IB – TDS on Rent Paid by Individuals or HUFs

Overview of Section 194-IB – TDS on Rent Paid by Individuals or HUFs

Applicability of Section 194-IB

Any individual or Hindu Undivided Family (HUF) (not covered under tax audit under Section 44AB) who pays monthly rent exceeding ₹50,000 is required to deduct TDS @ 5% under Section 194-IB.

Definition of “Rent” Under 194-IB : “Rent” includes any payment under lease, sub-lease, tenancy, or agreement for the use of land, building, or both (excluding plant/machinery/furniture).

Paying monthly rent > INR 50,000 in FY 2024–25? You’re mandated to deduct and deposit TDS under Section 194-IB of the Income Tax Act, 1961

Latest Update – Budget 2024

From October 1, 2024, the TDS rate under Section 194-IB has been reduced from 5% to 2% for qualifying individuals and HUFs.

• Rate before 30.09.2024: 5%
• Rate from 01.10.2024 onward: 2%
• Note: 3.75% was applicable for a temporary period (14.05.2020–31.03.2021)

Form 26QC Deadline: 30th April 2025 (for full FY)

TDS Rates:

▪️ 5% – For rent paid between 01.04.2024 to 30.09.2024

▪️ 2% – For rent paid from 01.10.2024 onwards (Budget 2024 change)

Key Features of Section 194-IB- TDS on Rent Paid by Individuals or HUFs

1. Who Should Deduct TDS?
   • Individuals/HUFs not liable to tax audit under Section 44AB, i.e., turnover:
     • Less than ₹1 crore (business)
     • Less than ₹50 lakh (profession)
   • Covered even if they are under presumptive taxation schemes (Sections 44AD, 44AE).
2. When to Deduct TDS?
   TDS must be deducted at the earlier of:
   • Time of credit of rent for the last month of the financial year or tenancy period
   • Time of actual payment (cash, cheque, or electronic)
3. TAN Not Required:
   • Deduction under 194-IB does not require obtaining TAN (Section 203A not applicable).
   • Only PAN of the deductor and landlord is needed.
4. Maximum Deductible TDS:
   Under Section 206AA, if the landlord does not provide PAN, TDS @ 20% applies.
   However, deduction should not exceed the rent amount of the last month of the tenancy/financial year.

Compliance Requirements TDS on Rent Paid by Individuals or HUFs

• Form 26QC:
  • Challan-cum-statement to be filed within 30 days from the end of the month in which rent is paid/due.
• Form 16C:
  • TDS certificate to be issued by the tenant to the landlord within 15 days from the due date of Form 26QC filing.
• TAN not required – Only PAN-based remittance is sufficient and Applicable irrespective of the tax regime (old/new)

Overview of Section 201(1A) with interest liability for defaults in TDS

Section 201(1A) deals with interest liability for defaults in:

• Deduction of TDS – when tax should have been deducted but wasn’t.
• Payment of TDS – when tax was deducted but not deposited on time.

Interest Rates & Calculation : In case of taxpayer failure to deduct TDS, 1% per month or part thereof. Required to be pay for the period From the date tax was deductible (i.e., date of payment or credit) to the actual date of deduction. In case Taxpayer Failure to Deposit TDS After Deduction

• Rate: 1.5% per month or part thereof.

• Period: From the date of deduction to the actual date of deposit. Even a delay of one day counts as a full month for interest calculation. Interest is calculated in calendar months, not based on actual days. and Any part of a month is treated as a full month. Examples

Example 1: Late Payment ·        TDS deducted: INR 1,00,000 on April 30 ·        Due date: May 7 ·        Actual payment: June 10 ·        Interest: INR 1,00,000 × 1.5% × 3 months = INR 4,500

Example 2: Late Deduction + Late Payment ·        TDS liability: ₹1,00,000 ·        Deducted in May instead of April ·        Paid on June 10 ·        Interest: ·        Late deduction: INR 1,00,000 × 1% × 2 months = INR 2,000 ·        Late payment: INR 1,00,000 × 1.5% × 2 months = INR 3,000 ·        Total Interest: INR 5,000

Disallowance of Interest : Interest paid under Section 201(1A) cannot be claimed as a business expense. It is a permanent difference for tax purposes No Deferred tax asset is created. Taxpayers follow the best practices to Avoid Interest, Taxpayer required to deduct and deposit TDS on time. Maintain a compliance system in the company & reconcile TDS records regularly.

Other applicable Additional Penalties : Following additional penal consequences

• Section 271C: Penalty up to 100% of the TDS amount.
• Section 271H: Penalty for late filing of TDS returns (₹10,000 to ₹1,00,000).

Section 276B: Prosecution for willful default (3 months to 7 years imprisonment + fine).

In sullary Consequences of Non-Compliance of TDS on Rent Paid by Individuals or HUFs

• Interest @ 1% per month – Section 201(1A)
• Late filing fee @ ₹200/day – Section 234E (max: TDS amount)
• Penalty up to TDS amount – Section 271H
• Possible Scrutiny/Notices from Income Tax Department

Don’t miss this! Deduct, deposit, and file on time to stay compliant.