What is meant by Section 194IB of Income Tax Act?

Section 194 IB of Income Tax Act was enacted in order to make sure that TDS (Tax deducted at Source) is withheld on the payments of rent.  According to the guidelines of the Finance Act, 2017, the “TDS on Rent '' is liable for deduction under the Section 194 IB of Income Tax Act by the individuals and the HUFs(Hindu Undivided Family). The main purpose of introducing Section 194 IB of Income Tax Act was to stop the tax evasion that was done by the landlords. In this blog, we will learn more about Section 194 IB of Income Tax Act.

Rent according to Section 194 IB of Income Tax Act

As per the guidelines of Section 194 IB of Income Tax Act, rent simply means any payment that is done under sub-lease or tenancy or any other condition for the uses that are mentioned below:

• Land
• Machinery
• Plants
• Furniture
• Equipments
• Fittings
• Building(also includes Factory Building)
• Land belongs to a structure (also includes factory building)

Who can deduct TDS?

All those individuals and HUFs(except for those who are liable for an audit under Section 44AB-clauses a and b) who pay monthly rent of more than Rs. 50000 to a resident are liable for a TDS deduction under  Section 194 IB of Income Tax Act. It should also be remembered by the taxpayers that if the total sales or gross receipts or turnover from profession or business of an individual or an HUF is more than the maximum monetary limits set during that financial year, then the business organisation will have to perform an audit as per Section 44AB- clauses a and b.

TDS Rate under Section 194 IB of Income Tax Act

Under Section 194 IB of Income Tax Act, the tenant or payer or lessee must deduct a tax at the rate of 5% for all the transactions that are made by him/her while making payments of rent to the landlord or payee or lessor. This was implemented from June 1, 2017 onwards. This deducted tax needs to be deposited online to the Government account through any of the branches of authorised banks.

Responsibilities of a tenant

As per the information given above, any individual or HUF who pays a monthly rent to a landlord which is more than Rs. 50000, will have to deduct TDS under Section 194 IB of Income Tax Act. The deduction rate has been specified as 5% of the payment of rent that is made to the resident. The steps that are listed below needs to be followed in order to make a TDS withheld on rent:

• First, one should collect the PAN of the resident and verify all the details with an original PAN Card
• The landlord and the tenant have to compulsorily submit their PAN Cards in the online form in order to provide information about the rent
• It is suggested not to make any mistakes while entering your PAN and other details. But, in case some error occurs, then the applicant will have to contact the Income Tax Department to rectify that error.
• Then, you will have to download the TDS certificate and provide it in Form 16 from TRACES and will have to be issued to the payee under 15 days from the due date to submit the Challan-Cum-Statement in Form 26QC.
• If the period of agreement is in the same financial year, then the taxpayer will have to compulsorily submit the form at the time when the agreement is terminated.

Responsibility of a landlord

The following are the responsibilities of a landlord which must be performed by him:

• He should provide his PAN to the tenant in order to validate information to the Income Tax Department about TDS.
• He should verify the details of the taxes that are deducted by the tenant in Form 26AS Annual Tax Statement.
• He should acquire Form 16C from the tenant which is only downloaded  from the website TRACES.

Due Date of TDS on Rent

Under Section 194 IB of Income Tax Act, the due date for making the payment for TDS on rent must be considered at 30 days from the end of that month when the rent was paid. For instance, if the TDS was deducted on rent by the taxpayer in December, then the TDS will have to be deposited either on or before 30 days i.e. either on or before 30th January.

Steps to pay TDS on rent

The  information about the transaction needs to be provided online by the tenant of the property through the TIN website.

STEP 1: Visit the official page of the Tax Information Network.

Step 2:  Choose the online form to provide TDS on the property (FORM 26QC) in order to avail the details in the form 26 QC.

Step 3: On clicking this, a new window will appear on your screen. His window is the e-payment page. On this page, select Form 26QC.

Step 4: The following details need to be field in the form 26QC:

• Corporation Tax (Companies)
• Income Tax (Other than Companies)
• Status of the landlord or lessor or payee
• PAN Card details of the landlord or lessor or payee
• Address of the tenant or payer or lessee
• Details of the Property
• Amount credited or paid
• Details of tax deposit
• Date of tax deduction

Step 5: Once the details of the transaction have been provided successfully, the tenant is free to make online payments through the e-tax payment option or he can visit any of the branches of the authorised bank on the subsequent dates.

Step 6: In case the payments are made through banks, then these banks will make e-payments without the digitisation of challan. The bank will get the details of the challan from the TIN website. You should note the acknowledgment number for future uses. Once the payment of TDS is successful, a counterfoil of challan will appear. This counterfoil will have the CIN, details of the payments and the name of the bank through which the payments were made. Counterfoil acts like evidence for the transaction of the payment.

Penalties

According to Section 234 E of the Income Tax Act, 1961, if a tenant fails to provide the details online in Form 26QC under 30 days from the end of that month when the rent was paid, then a penalty will be levied at the rate of Rs. 200 per day.

Conclusion

According to the information provided in the blog, it can be concluded that there are numerous advantages of Section 194 IB of Income Tax Act. Also, the tenant and the landlord have specific responsibilities that they must perform.