Pradhan Mantri Jan Dhan Yojana
June 4, 2018
Tax Calendar – Income Tax Due Dates for 2018-19
June 7, 2018

If you are paying rent more than Rs 50,000 every month, you are required to deduct tax from the rental payment and deposit to the government's account as per the provisions of section 194-IB of the Income Tax Act, 1961. Read this comprehensive guide by H&R Block India to know more.

TDS on Rent Exceeding Rs 50,000 – Section 194-IB

Last Update Date : June 04, 2018

section 194-IB - TDS on Rent

Each one of us desires to own a house but for most of us, it is not financially viable, especially in the initial phase of our career. So, we opt to reside in a rented house. The rent you pay for such a house is a source of income for your landlord. Your landlord might be a tax compliant citizen who pays tax on such income but many others hide this income from the government. They force their tenants to pay the rent in cash and do not give receipts. So, the government has added provisions in the Income Tax Act to curb tax evasion by landlords. As per section 194-IB of the Income Tax Act, 1961, if you are paying rental income exceeding Rs 50,000, you are liable to deduct tax on it and deposit it to government’s account. This guide by H&R Block India will help you understand the relevant tax provisions in detail.

Section 194-IB

As per the Finance Act 2017, “TDS on Rent” under section 194-IB is liable to be deducted by Individuals or HUF (other than those covered under section 44AB of the Act), responsible for paying rent to a resident exceeding Rs 50,000 for a month or part of a month during the previous year. Section 194-IB of the Income Tax Act, 1961 states that for all the transactions with effect from June 1, 2017, tax @5% should be deducted by the tenant of the property at the time of making payment of rent to the landlord.

Points to be noted:

  • It is for commercial and residential purposes
  • TDS @5% is deducted from rent above Rs 50,000
  • Tax is to be deducted from total annual rent paid to the resident landlord by the tenant.
  • Tax is to deducted once in the financial year at the end of the year or in the month when the premise is vacated / on termination of the agreement
  • Where the property is vacated during the year, the tax needs to be deducted on the last day of the tenancy.
  • Tenants do not need TAN

Let’s take an example:
Shan is paying a rent of Rs 62,000 per month. Now as per the changes in budget 2017, he will pay Rs 62,000/month but while making the payment of the rent for March 2018, he is required to deduct TDS @ 5% on the total rent paid for the year F.Y 2017-18. TDS works out to 5 %( Rs 62,000 x10) or Rs 31,000 since the new rule is applicable from 1st June 2018 i.e. 10 months. In the last month, Shan can pay the landlord Rs 62,000-31,000 = Rs 31,000. He has to then deposit Rs 31,000 with the income tax department. He will, therefore, have to furnish the PAN of the landlord.

Computation of TDS and Tax Liability

Let’s understand how we can calculate TDS on rent and how it affects the tax liability of the taxpayer (landlord).

Calculation of TDS on Rent Paid by the Tenant

Particulars Amount (in Rs)
Rent per month 55,000
No. of months 12
Total rent paid 6,60,000
TDS @5% as per 194IB 33,000

Computation of Tax on Landlord’s Income

Particulars Amount (in Rs)
Income 6,60,000
Standard deduction @ 30% 1,98,000
House property Income 4,62,000
Total Tax liability 10,600
Less: TDS (33,000)
Refund (22,400)

Note: Total tax liability is calculated assuming no other income and no deductions under chapter VI.

How to Pay TDS on Rent above Rs 50,000?

The tenant of the property has to furnish information regarding the transaction, online on the TIN website i.ewww.tin-nsdl.com after successfully providing all the information.

Tenant/deductor can:

  • either make the payment online (through e-payment option) immediately or
  • make the payment subsequently through e-tax payment option (net-banking account) or by visiting any of the authorized Bank branches. However, such bank branches will make e-payment without digitization of any challan. The bank will get the challan details from the online form filled on TIN website (www.tin-nsdl.com).

How to Furnish TDS through e-Tax Payment Option Immediately?

Gone are those days where you had to stand in long queues to get your work done. Now technology has improved everything. E-payments facilities have lowered the burden of taxpayers but in order to avail this the taxpayer is required to have a net-banking account with any of the Authorized Banks or a debit card in case of some banks. Here are the steps to pay tax online using form 26QC.

STEP 1: Firstly

  • Go to NSDL e-GOV website(www.tin-nsdl.com)
  • Click on the option: “Online form for furnishing TDS on Rent (Form 26QC)”.
  • Select Form 26QC (Payment of TDS on Rent of Property)

STEP 2: Once you select the form you will be directed to the screen for entering certain information like:

  • Permanent Account Number of the Tenant and Landlord
  • Address and contact details of the Tenant and Landlord as well as the Property being let out
  • Financial Year will be populated on the basis of Date of Payment/Credit selected in the Form.
  • Major Head Code – Indicates the type of tax applicable viz; Corporation Tax (Companies)/ Income Tax (Other than Companies) will be populated based on Landlords PAN
  • Period of Tenancy
  • Total Value of Rent Payable
  • Value of Rent Paid in Last Month
  • Date of Payment/Credit
  • Date of Deduction
  • Amount Paid/Credited
  • TDS Amount
  • Select the option for “e-tax payment immediately” if you want to pay taxes through your net banking account
  • Select the option for “e-tax payment on subsequent date (e-payment of taxes by visiting any of the Bank branches)” if you do wish to pay the taxes by cheque or manual mode.”

NOTE: PAN of the tenant and landlord must be correctly mentioned in the form.

STEP 3: After entering all the above detail, click on PROCEED button as shown in the image below. The system will check the validity of PAN.

  • In case PAN is not available in the database of the Income Tax Department then you cannot proceed with the payment of tax.
  • If PAN is available then TIN system will display the contents you have entered along with the “Name” appearing in the ITD database with respect the PAN entered by you.

STEP 4: You can now verify the details entered by you as shown in the image below:

  • In case you have made a mistake in data entry, click on “EDIT” to correct the same. If all the detail and name as per ITD is correct, click on “SUBMIT” button.
  • Ten digit alpha numeric ACK no. will be generated and you will be provided with an option to print an Acknowledgment slip.
  • Please note that the name and status of PAN is as per the ITD PAN Master. You are required to verify the name before making payment. In case any discrepancy is observed, please confirm the PAN entered by you. Any change required in the name displayed as per the PAN Master can be updated by filling up the relevant change request forms for PAN. If the name is correct, then click on “Confirm”.

STEP 5: Paying tax either offline or online:

  • Paying tax offline by visiting bank branch: With the printout of the Acknowledgment slip, you may visit any of the authorized Bank branches to make the payment of TDS subsequently. The Bank will make the payment through its net banking facility and provide you the Challan as acknowledgment for payment of taxes. Based on the information in the Acknowledgment slip, the bank will make the payment only through net-banking facility by visiting tin-nsdl.com and entering the acknowledgement number duly generated by TIN for the statement already filled by the buyer in respect of that transaction.
  • Paying tax online: In case you desire to make the payment through e-tax payment (net banking account) subsequently, you may access the link “E-tax on subsequent date” on the TIN website. On entering the details as per the acknowledgment slip, you will be provided an option to submit to the bank wherein you have to select the Bank through which you desire to make the payment. You will be taken to the net banking login screen wherein you can make the payment online.

What are the penalties for non-compliance?

Non-compliance with the TDS provisions or failing to file TDS return on time or not deducting the right amount of tax can land you in trouble.

  • Implication of Non-deduction: Interest @ 1 % p.m. of such tax from the date on which such tax was deductible till the date on which such tax is deducted.
  • Implication of Non-payment: Interest @ 1.5% p.m. of such tax from the date on which such tax was deducted till the date on which such tax is actually paid.
  • Fees for Late Filing of TDS Return: Under section 234E, a fee of ₹ 200 per day would be levied for late furnishing of TDS statement from the due date of furnishing of TDS statement to the date of furnishing of TDS statement, maximum up to amount of tax deductible.
  • Penalty for failure to furnish TDS Return: The penalty can be charged between Rs 10,000 and Rs 1 lakh.
  • Besides penalty and interest, defaulters can also face imprisonment for a term which shall not be less than 3 months but may extend to 7 years along with fine.
  • For delay in issuing Form 16C, the penalty is Rs 100 per day.

Points to be Remembered by Tenant of the Property

  • All individuals or HUFs (except those liable to audit under clause a and b of section 44AB) paying monthly rent to a resident in excess of Rs. 50,000 are liable to deduct TDS under section 194-IB.
  • Deduct tax @ 5 % from the rent payment made to the Landlord.
  • Collect the Permanent Account Number (PAN) of the Landlord and verify the same with the Original PAN card.
  • PAN of the Landlord, as well as Tenant, should be mandatorily furnished in the online Form for furnishing information regarding the rent.
  • Do not commit any error in quoting the PAN or other details in the online Form. For the purpose of error rectification, you have to contact Income Tax Department.
  • Download and furnish TDS certificate in Form 16C from TRACES and issue to the Landlord within 15 days from the due date of furnishing of the challan-cum-statement in Form 26QC.
  • If the Landlord / Lessor/ Payee is a non-resident, liability to deduct TDS arises under section 195 of the Income-tax Act, 1961.

Points to be Remembered by Landlord of the Property

  • Provide your PAN to the Tenant for furnishing information regarding TDS to the Income Tax Department.
  • Verify deposit of taxes deducted by the Tenant in your Form 26AS Annual Tax Statement.
  • Insist on obtaining Form 16C from the tenant which has been downloaded from TRACES website only.

Frequently Asked Questions

1. Is landlord required to provide his PAN to the tenant?

Ans: Yes. Tenant have to mandatorily furnish the PAN of his landlord. Or else in the absence of PAN or failure to provide the same, tax shall be deducted @20%. However, the overall tax in such a scenario shall be restricted to the rent payable for the last month of the financial year or tenancy whichever is earlier.

2. How can the tenant deposit the taxes?

Ans: The tenant should fill a form 26QC which is a challan-cum statement.

3. Whether the tenant needs to give any proof of TDS/taxes withheld to the landlord?

Ans: Tenant needs to issue a TDS/ tax paid certificate i.e. (Form 16C) to the landlord as proof of taxes deducted. It is to be issued within 45 days from the end of the month in which the tax was deducted.

4. Where will I get Form 16C?

Ans: Form 16C will be available for download from the website of Centralized Processing Cell of TDS i.e. www.tdscpc.gov.in

5. I have filed Form 26QC and made the payment online, but I forgot to save the Acknowledgment Number generated at TIN website?

Ans: Acknowledgment number for the Form 26QC furnished is available in the Form 26AS (Annual Tax Statement) of the Deductor (i.e. Tenant of the property).The same can be viewed from the TRACES website (www.tdscpc.gov.in)
Or
Taxpayer can also click the option ‘View Acknowledgment’ hosted on the TIN website. Taxpayer needs to enter PAN of the Tenant and Landlord, Total Payment and Financial Year (as mentioned at the time of filing the Form 26QC) to retrieve the Acknowledgment Number.

7. What rules are applicable if my landlord is Non-resident Indian?

Ans: As per section 195 of the Income Tax Act, any person responsible for making a payment to a non-resident (landlord), any sum (other than salary or interest referred to in section 194LB or section 194LC) taxable under the Income Tax Act shall, at the time of credit or payment (whichever is earlier) of such income, deduct income-tax thereon at the rates in force. The rate applicable in case of rent will be 30% plus surcharge and education cess as may be applicable. It is important to note here that in case of non-resident there is no minimum amount prescribed for applicability of TDS. TDS has to be deducted irrespective of the quantum of the rent paid.

8. In case I shifted my accommodation during the middle of the year and forgot to deduct TDS. What is my liability and what should I do?

Ans: If you fail to deduct the taxes you will be considered as an assessee in default and all other consequences will be same as mentioned above (penalty for non-compliance). In this case it is advisable to deduct the taxes as due (recover it from the landlord) and pay it to the government with applicable interest.
But a deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident—

  1. has furnished his return of income under section 139;
  2. has taken into account such sum for computing income in such return of income; and
  3. Has paid the tax due on the income declared by him in such return of income and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.
    Note: this exception is not applicable to TDS u/s 195.

9. Is tenant who is a foreigner also required to deduct TDS on rent?

Ans: As per section 194IB, any person (individual or a Hindu undivided family) (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent in excess of Rs. 50K for a month or part of a month during the previous year shall be required to deduct the taxes @ 5%. This provision shall equally apply to a non-resident tenant if he has taken on rent a property form a resident landlord and paying a rent exceeding Rs 50K per month.

After deducting and submitting the TDS to the government account, do not forget to file TDS return. Also, remember to claim HRA to save tax on rent paid. Just like HRA, there are various other tax benefits which you can avail while filing your Income tax return. To make optimum utilisation of all tax saving opportunities, you can get your Income tax return filed by experts at H&R Block India.

  • Share: 

Still Have Questions?