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2022

TDS u/s 194IB and 194IC of Income Tax Act, 1961

TDS 194IC of Income Tax Act 1961

TDS on Payment of Rent by Individuals or Hindu undivided family [Section 194IB]:

  • The key objective of inserting this section is to curb tax evasion by landlords.
  • Section 194IB was introduced vide Finance Act, 2017 to cover expenses incurred by individual and HUF by way of payment of rent to an Indian resident.
  • The individual and HUF who are not liable to tax audit under section 44AB are covered under this section.
  • Hence, Section 194B mandates that individuals or Hindu Undivided Families to deduct TDS for rent payment made to an Indian resident subject to the threshold limits.

Meaning of Rent:

Rent means any payment made under lease or sub-lease or tenancy or any agreement for use of an immovable property. It is paid to the owner of the immovable property by the tenant or Lessee. 

The term ‘Rent’ refers to any payment under any:

  • Tenancy; or
  • Lease; or
  • Sub-Lease; or
  • Any other arrangement where a person has agreed to pay any sum of money to the owner of a property for use of such property.

Property includes:

  • Building including factory building;
  • Land;
  • Land appurtenant to a structure including factory building;
  • Machinery;
  • Plant;
  • Furniture;
  • Equipment;
  • Fittings.

Rate and Threshold Limit of TDS Deduction:

  • Tax should be deducted at a rate of 5%on all transactions covered under the scope of Section 194IB with effect from 1st June, 2017. If the PAN of the recipient is not available then the rate will be 20%.However, the amount of TDS cannot exceed the amount of rent paid for the last month.
  • TDS needs to be deducted on payment of rent where the amount of monthly rent exceeds Rs. 50,000 in any month during the financial year.


Liability to Deduct TDS under this Section:

  • As stated earlier, an individual or HUF who is not liable to tax audit u/s 44AB is required to deduct TDS under this section.
  • TDS should be deducted at the time of making payment of rent in the capacity of tenant, payer or lessee to the lessor or landlord of the property in relation to which such rent is being paid. Hence, the tenant/lessee is the ‘payer’ and landlord or lessor is the ‘payee’.

Time of TDS Deduction:

Time of tax deduction is, earlier of:

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

No requirement of TAN:

Individual or HUF deducting TDS under this section does not require TAN. They can quote their PAN in the TDS Retun.

TDS on Rent under a Joint Development Agreement [Section 194IC]:

Section 194-IC has been inserted recently from Budget 2017.The objective of insertion of this section was to bring under scope the ‘Joint Development Agreements’.A person who pays rent to the landlord under a Joint Development Agreement (JDA) must deduct TDS under Section 194IC.

Liability to Deduct TDS:

Any person who pays to a resident any consideration (not in kind) under a Joint Development Agreement, has to deduct TDS u/s 194IC.

Joint Development Agreement:

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.

It is an arrangement between the Land owner and the Builder/Developer, where the Land owner contributes his land and the Developer takes the full responsibility of obtaining approvals, construction, launching and marketing the project with the help of financial resources. The Land owner in return gets the consideration in form of lump-sum or percentage of sales revenue or some specific percentage of constructed area in the project, it purely depends upon the terms and conditions as mutually agreed by the parties.

In this manner, the Land owner and the Developer with the engagement pooled together with the help of appropriate resources and requisite expertise, so as to bring out the maximum productive result. Mostly there are 2 kinds of JDA:

  1. Area sharing Joint Development Agreement;
  2. Revenue sharing Joint Development Agreement.

Time of Deduction and Deposit of TDS under Section 194IC:

  • 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.
  • The amount of TDS should be deposited to the credit of the Government on or before 7 days from the end of the month, in which deduction is made.
  • If the amount is credited or paid in the month of March then TDS should be deposited to the credit of the Government on or before on or before 30thApril.

Rate of TDS:

  • The rate of the tax deduction is 10% irrespectively of the amount of payment. If the PAN of the receiver is not available then the rate is 20%.

Non-Applicability of Section 194IC:

  • This section is not applicable in for the value of Area Sharing given by the Promoter to the Land Owner.
  • Similarly, this section is not applicable for Agricultural Land.

 

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Financial Management