TDS on Payment of Rent by Individuals/HUFs

Introduction

Section 194IB of the Income Tax Act, 1961 deals with TDS on payment of rent by individuals or Hindu Undivided Families (HUFs) to a resident. In this article, we will discuss the provisions of Section 194IB in detail and elaborate on the various aspects of this provision.

Applicability of Section 194IB:

Section 194IB is applicable to certain individuals or HUFs. However, where the rent paid or credited whose total sales, turnover or gross receipt is:

1. Not above Rs. 1 crore in case of business
2. Not above Rs. 50 lakh in the case of the profession.

In such a case, Section 194IB will not be applicable.

Further, Section 194IB will apply to such individuals or HUFs if they pay rent exceeding Rs. 50,000 per month.

What is ‘rent’ as per Section 194IB?

Rent is the payment under:

1. Lease
2. Sub-lease
3. Tenancy
4. Any other arrangement
5. Arrangements for the use of land, building or both

Rate of TDS under Section 194IB:

The taxpayer is required to deduct TDS at the rate of 5% on the rental payment made or credited to the landlord during the financial year. This means that if the monthly rent is Rs. 60,000, then TDS will be Rs. 3,000 (5% of Rs. 60,000).

Rate of TDS in case of no PAN is available

As per Section 206AA of the Act, TDS at the rate of 20% shall be deducted where the payee does not provide the PAN number to the deductor.

However, this amount will not exceed, as per the case:

1. Rent payable in the last month of tenancy
2. Rent payable for the last month of the previous year

Time of deduction:

The TDS is deductible at the time of:

1. Payment or credit to the account of the payee (last month of tenancy or last month of previous year),
2. Payment is made to the payee in cash or by way of issue of cheque/ draft/ any other mode

Whichever is earlier.

This means that if the rent is paid in advance, the TDS will be deducted at the time of payment, even if the tenancy period has not started yet.

Threshold limit:

This section is applicable only if the rental payment exceeds Rs. 50,000 per month. This means that if the monthly rent is less than Rs. 50,000, there is no requirement to deduct TDS under this provision.

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Non-applicability of Section 194I:

Section 194IB is not applicable if the payer is required to deduct TDS under Section 194I of the Income Tax Act, 1961. Section 194I deals with the deduction of TDS on rent payments made to certain persons, including companies, firms, and any other entity. This means that if the payer is required to deduct TDS under Section 194I, Section 194IB will not apply.

Non-Applicability of TAN provisions

The provision related to TAN under Section 203 A of the Income Tax, 1961 will not be applicable where the TDS is deducted under Section 194IB.

Differences between Section 194IB and Section 194I:

The following are the key differences between Section 194IB and Section 194I:

1. Applicability: Section 194I is applicable to all persons who are not individuals and HUFs, while Section 194IB is only applicable to individuals and HUFs. This means that companies, firms, and any other entity are also covered under Section 194I, whereas Section 194IB only applies to individuals and HUFs.
2. Threshold limit: Under Section 194I, TDS is deductible if the annual rental payment exceeds Rs. 2,40,000. On the other hand, under Section 194IB, TDS is deductible if the monthly rental payment exceeds Rs. 50,000.
3. Rate of TDS: The rate of TDS under Section 194I is either 2% or 10%. The rate of TDS under Section 194IB is 5%.

1. Non-applicability of Section 194IB: Section 194IB is not applicable if the payer is required to deduct TDS under Section 194I. This means that if the payer is required to deduct TDS under Section 194I, there is no need to deduct TDS under Section 194IB.

Penalties for non-compliance:

Non-compliance with the provisions of Section 194IB may attract penalties and legal consequences. The following are the penalties that may be levied in case of non-compliance with the provisions of Section 194IB:

1. Interest: If the payer fails to deduct TDS, then he/she may be liable to pay interest at the rate of 1% per month or part of the month for the period of delay in deducting TDS.
2. Penalty: If the payer fails to deposit the TDS with the government, he/she may be liable to pay a penalty equal to the amount of TDS that has not been deposited.
3. Prosecution: If the payer willfully fails to deduct or deposit TDS, he/she may be liable to face prosecution under the Income Tax Act. The penalty for such an offense may be imprisonment for a term ranging from 3 months to 7 years and a fine.

Conclusion:

Section 194IB of the Income Tax Act, of 1961, is an important provision that governs the deduction of TDS on rental payments made by certain individuals and HUFs. This section is applicable only if the rental payment exceeds Rs. 50,000 per month. It is important to note that this section is not applicable if the payer is required to deduct TDS under Section 194I of the Income Tax Act, 1961.

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