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What is Section 194IB &194IC under Income Tax Act?

Updated on: May 9th, 2023

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6 min read

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Section 194IB of the Income-tax Act deals with the tax deducted at source on payment of rent. Section 194IC was introduced to bring the ‘Joint development agreement’ of real estate under the preview of TDS. An agreement between the owner of the asset and the developer is known as a joint development agreement.

What does Section 194IB specify?

According to Section 194IB, it is mandatory for any person, i.e. individuals / HUF not liable to audit u/s 44AB, to deduct taxes for rent paid to a resident, exceeding Rs 50,000 per month.

What does rent mean according to Section 194IB?

According to the section, rent means a payment made by a payee under a tenancy, lease, sub-lease, or any other arrangement made for assets such

  • Land
  • Land including a factory building
  • Building including a factory building
  • Machinery
  • Furniture
  • Equipment
  • Plant
  • Fittings
  • The payee may or may not own the assets mentioned above.

What is the point of deduction of TDS?

TDS must be deducted, by the individuals or HUFs, earlier of:

  • At the time of credit of rent (for the last month in the previous year or the last month of the tenancy if the property is vacated before during the year), or
  • At the time of payment (via cash or cheque or draft or any other mode).

What is the rate of TDS under section 194IB?

The tax rate applicable is 5%, in case the rent payment exceeds Rs 50,000 and the landlord’s PAN is provided.

In case PAN is not available, then a TDS of 20% will be applicable.

What does Section 194IC specify?

A person who pays rent to the landlord under a Joint Development Agreement (JDA) must deduct TDS under Section 194IC.

A Joint Development Agreement is an agreement of the owner of an asset (such as land or building or both) to allow a person to build a real estate project in that asset. In return, the owner receives a share and/or cash payment.

What is the point of deduction of TDS under 194IC?

The deduction will be made either at the time of income credit to the account of the payee or at the time of actual payment, whichever is earlier. The payment can be made in cash, cheque, draft, or other methods.

What is the time limit on depositing TDS?

  • Where the payment is made by or on behalf of the government – on the same day (without using any challan form).
  • Where the payment is made in any other case than the government – on or before seven days from the end of the month in which deduction is made, where tax is paid accompanied by an income-tax challan. If the amount is credited or paid in March – on or before April 30.b. In any other case – on or before seven days from the end of the month in which the deduction is made.

Frequency and mode of TDS payment

Tenants must deduct and pay the tax to the government once per financial year. A challan-cum-statement, Form 26QC should be used to make this payment. Further, the tenant must provide Form 16C, a TDS certificate to the landlord as proof of the tax deposited. A tax deduction account number (TAN) is not necessary to make the transaction.

What penalty is applicable in the case of non-deduction or delay?

In case of non-deduction of taxes, the tenant may have to pay a penalty that is equivalent to the amount of taxes deducted. On the other hand, if the tax deposited to the government is delayed, penal interest of 1% for delay in deducting and depositing and 1.5% for delay in depositing tax will be levied. In case of failure on the filing Form 26QC within 30 days from the end of the month in which tax payment is made, will result in a late fee of Rs 200 per day. Click here to know more about the deposit of TDS and quarterly returns of TDS and penal implications for TDS defaults.

Online TDS Payment Procedure under 194IB

Step 1: Open the URL, https://www.tin-nsdl.com/.

Step 2: Choose the option ‘TDS on Rent of Property’. A new window appears. Click on ‘Online form for furnishing TDS on property (Form 26QC)’.

Step 3: A page with the headline ‘e-Payment of Taxes’ will appear. Fill in the necessary details such as property details, tax deposit details, the amount paid, date of tax deduction, and landlord and tenant details.

Step 4: You can either pay the tax online immediately or visit an authorised bank for the same.

Step 5: Note the acknowledgement number of the payment for future reference. You can download Form 26QC and print it for documentation purposes. Also, do not forget to provide Form 16C to the landlord as proof of tax payment. The landlord may use it while filing his taxes.

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