Decoding Section 194-IB of the Income Tax Act, 1961

Section 194-IB of the Income Tax Act, 1961, was introduced to bring individuals and Hindu Undivided Families (HUFs) (who are not subject to tax audit) under the purview of Tax Deducted at Source (TDS) on rent payments.

Key Provisions of Section 194-IB

1. Applicability:

• Applicable to Individuals & Hindu Undivided Families (HUFs) who are not liable to tax audit under Section 44AB.
• The provision is triggered when an individual or HUF pays rent exceeding ₹50,000 per month to a resident landlord.

2. Revised Rate of TDS (Effective October 1, 2024):

• TDS must be deducted at 2% (earlier 5%) on the total rent paid.
• If the landlord does not provide PAN, TDS must be deducted at 20%, subject to the limit of the last month’s rent.

3. Time of Deduction:

• TDS should be deducted once a year, in the last month of the tenancy or during the last month of the financial year, whichever is earlier.

4. Payment & Compliance:

• The deducted TDS must be deposited with the Government using Form 26QC within 30 days from the end of the month in which TDS was deducted.
• No requirement to obtain a TAN (Tax Deduction Account Number) for deduction and deposit.
• A TDS certificate (Form 16C) must be issued to the landlord within 15 days from the due date of filing Form 26QC.

Illustration
🔹Example:

• Mr. A, an individual not subject to tax audit, pays ₹60,000 per month as rent to his landlord.
• Total rent for the year: ₹7,20,000
• TDS @2% = ₹14,400
• TDS will be deducted in March (last month of FY) or the last month of tenancy and deposited via Form 26QC.

Exceptions & Key Considerations
✅ Not Applicable If:

• Rent is ₹50,000 or less per month.
• The payee is a non-resident (in which case, Section 195 applies).
• The payer is a company or an individual covered under tax audit (in which case, Section 194-I applies instead).

✅ Penalties for Non-Compliance:

• Interest for late deposit: 1% per month (if TDS not deducted) or 1.5% per month (if deducted but not deposited).
• Late filing fee: ₹200 per day for delay in filing Form 26QC.
• Penalty & disallowance: If TDS is not deducted, rent expenses may be disallowed under Section 40(a)(ia).

Conclusion

Section 194-IB streamlines TDS compliance for individuals & HUFs paying high rental amounts by requiring a one-time annual deduction. The TDS rate has been reduced to 2% (from 5%), effective October 1, 2024, to ease compliance burdens.
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