What are Sections 194-IB &194-IC Under Income-tax Act?

Section 194-IB of the Income Tax Act deals with the tax deducted at source on rent payments. Section 194-IC was introduced to bring the ‘Joint development agreement’ of real estate under the purview of TDS. A joint development agreement is an agreement between the owner of the asset and the developer.

Budget 2024 Updates

TDS rates for Section 194-IB has been proposed to reduce from 5% to 2% with effective from 1st October 2024.

What does Section 194-IB Specify?

According to Section 194-IB, 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. Thus, as per this provision, any individual (even a salaried class individual) is liable to deduct TDS @ 5% if the rent that is being paid exceeds Rs 50,000 per month. This rate has been proposed to be reduced to 2% with effect from 1st October 2024.

What does Rent mean as per Section 194-IB?

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.

Time of Deduction of TDS Under Section 194-IB

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

• 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 during the year), or
• At the time of payment (via cash cheque or draft, or any other mode).

Rate of TDS Under Section 194-IB

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

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

What does Section 194-IC Specify?

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

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.

Time of Deduction of TDS Under 194-IC

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.

Rate of TDS under section 194-IC

Any payment made under the specified agreement (Joint development agreement) by the resident shall deduct TDS @ 10%.

Time Limit for Depositing TDS

• 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. In any other case – on or before seven days from the end of the month in which the deduction is made. In case of the sum is deducted u/s 194IB, then the time limit for payment using the challan cum statement in Form 26QC is 30 days from the end of the month
• Where the payment is made by or on behalf of the government - on the same day (without using any challan form)

Mode of TDS Payment on Rent

Tenants must deduct and pay the tax to the government once per financial year i.e Tenant needs to deduct TDS on March month rent or on the last tenancy month. 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.

Penalty 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 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 learn more about the deposit of TDS, quarterly returns of TDS, and penal implications for TDS defaults.

Online TDS Payment Procedure under 194-IB

Step 1: Log in to your income tax portal.

Step 2: Once Logged in, Go to E-file >>  E- Pay Tax.

Step 3: Select on New Payment >> 26QC (TDS on Rent of Property)  

Step 4: Fill in the details of the tenant. Add landlord details like PAN and address. Provide details on rent being paid and TDS deduction details. Proceed with payment of tax after you have entered the above details. 

Enter the period of tenancy, rent value and other relevant details.

Step 5: Once submitted, note the payment acknowledgement number 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.

Note: Form 16C can be downloaded only from the TRACES portal. You will have to register and log in as a Taxpayer. Under download, you can request for Form 16C generation which will later be available in Requested Download. 

Related Articles:

1. Everything about TDS you have to know 
2. TDS Rates Charged
3. TDS paid on Rent 
4. Section 45(5A) for Joint Development Agreement