In the budget of 2017, the government inserted a new section 194IB. Under this section, any individual or HUF, who pays a rent of Rs 50,000 or above per month, will have to deduct TDS at the rate of 5% per annum. This new section has become effective from 1st June 2017.
Who is liable to deduct TDS?
Before this section was introduced, individuals or HUFs who were required to get their books of accounts audited under section 44AB were liable to deduct TDS @10%. Accordingly, individuals or HUFs not covered under the ambit of tax audit under section 44AB were not required to deduct TDS irrespective of the rent amount paid by them. However, by insertion of section 194IB, all such individual and HUFs not covered under tax audit are brought under the net of compliance to deduct TDS if the rent paid by them is or above Rs 50,000 per month to a resident landlord.
When to deduct TDS?
As per this section, TDS is not required to be deducted every month. TDS is to be deducted @ 5% in the last month of a financial year i.e. March. However, in a case where the property is vacated before the end of the financial year or if the property is used only for part of the year, the TDS shall be deducted in the month when the property is vacated or the month when the last rent is paid. Thus TDS can be deducted from the rent of the month of March.
When and How to pay TDS?
TDS, when deducted, has to be paid within 30 days from the end of the month in which tax is deducted. Thus when TDS has been deducted from the rent of the month of March should be deposited by 30th April.
This TDS has to be paid via Form 26QC. While filling Form 26QC, various details of the landlord like PAN, email id, the address of the property, contact number, amount of rent paid and the amount of tax deducted. If the property is owned by two or more landlords, all the details along with their PAN should be provided separately in the same Form 26QC for every landlord.
Furnish Form 16C
Once the Form 26QC is filed and tax is paid, the tenant is also required to furnish the landlord with the Form 16C (TDS Certificate). The tenant shall furnish this Form 16C to the landlord within 15 days from the date of filing Form 26QC. This Form 16C is available on the portal from 3-7 days after depositing and filing Form 26QC.
Applicability of Interest & Penalty
- If the tenant fails to deduct TDS, an interest of 1% per month shall become applicable for every month of delay.
- If the tenant has deducted the tax but fails to deposit the same to the account of government, a penalty of 1.5% per month is attracted for every month of delay.
- In the case where the tenant does not file Form 26QC within the due date, a late fee of Rs 200 per day shall become applicable.
- Tenant shall be liable to pay a penalty of Rs 100 per day in a case where there is a delay in furnishing the Form 16C to the landlord.
- In case if the Form 26QC is not filed within one year from the due date, a penalty ranging between Rs 10,000 to Rs 1,00,000 could be levied on the tenant.
Example:
Mr. Amit is a person earning income from salary. He has been living in a rented apartment, the rent for which is Rs 55,000 per month. Under Section 194IB, Amit is required to deduct TDS @ 5% in the month of March. Thus Rs 33,000 (5% of 55,000*12 months) is to be deducted from the rent of month of March.
This TDS of Rs 33,000 shall have to be deposited to government’s account on or before 30th April by filling Form 26QC. Let’s say he pays the TDS and files Form 26QC on 30th April, then Amit is required to furnish Form 16C to his landlord by 15th May.
It is always advisable to seek professional help and advice for any tax related query and in order to ensure that one is a tax compliant citizen of the country.
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