The Union Budget 2024 introduced several changes to the tax structure, TDS Rates and TCS Rates, one of which pertains to the Tax Deducted at Source (TDS) on rent payments. Specifically, the TDS rate under Section 194-IB has been revised from 5% to 2%, effective from 1st October 2024.
Understanding Section 194-IB of the Income Tax Act:
Section 194-IB was introduced in the Budget 2017 to bring more rent-payers under the tax net, particularly those who were not liable for audit under Section 44AB of the Income Tax Act. Prior to this, only Section 194-I governed the deduction of TDS on rent, but it was limited to those individuals and Hindu Undivided Families (HUFs), who were required to have their accounts audited. This left a significant portion of rent-payers outside the purview of TDS, which Section 194-IB aimed to address.
Who Needs to Deduct TDS Under Section 194-IB?
Section 194-IB mandates that any individual or HUF (other than those required to undergo an audit under Section 44AB) who is responsible for paying rent exceeding ₹50,000 per month to a resident, must deduct TDS on such payments. The TDS must be deducted at the time of crediting the rent to the payee’s account or at the time of actual payment, whichever is earlier. It is important to note that the deductor under this section is not required to obtain a TAN (Tax Deduction and Collection Account Number).
Key Changes in Budget 2024: TDS Rate Reduced from 5% to 2%:
One of the noteworthy amendments in Budget 2024 is the reduction of the TDS rate under Section 194-IB from 5% to 2%. This change will take effect from 1st October 2024. The reduction in the TDS rate aims to ease the tax burden on rent-payers, especially individuals and HUFs who are not subject to audit under Section 44AB.
Comparison Between Section 194-IB and Section 194-I:
| Parameter |
Section 194-IB |
Section 194-I |
| Applicability |
Individuals and HUFs not liable to tax audit under Section 44AB |
All types of taxpayers |
| Type of Income |
Rental income for residential purposes |
Rental income for residential or commercial
purposes |
| Threshold Limit |
Rent exceeding ₹50,000 per month |
Annual rent exceeding ₹2,40,000 |
| Rate of TDS |
2% (effective 1st Oct 2024) earlier it was 5% |
10% of the total rental amount for land, building, or both used for commercial purposes.
2% for residential properties. |
| TAN Requirement |
Not required |
Required |
| Form Submission |
Form 26QC |
Form 26QC |
| Due Date for TDS Payment |
Within 30 days of deduction |
Within 30 days of the financial year end |
| Penalty Provisions |
Applicable |
Applicable |
Compliance Requirements: Form 26QC and Form 16C:
Taxpayers who deduct TDS under Section 194-IB must file Form 26QC, which is a challan-cum-statement, within 30 days from the end of the month in which the TDS was deducted. Additionally, the deductor must issue Form 16C, a TDS certificate, to the payee within 15 days from the date of filing Form 26QC. Non-compliance with these requirements may result in penalties, including a penalty of ₹200 per day for late filing of Form 26QC and ₹100 per day for late issuance of Form 16C.
Penalties for Non-Compliance:
Failure to comply with the provisions of Section 194-IB can lead to several penalties:
- Non-Deduction of TDS: A penalty of 1% per month or part thereof, calculated from the date the tax was deductible until the date it is deducted.
- Non-Payment of TDS: A penalty of 1.5% per month or part thereof, calculated from the date the tax was deducted until the date it is actually paid.
- Late Filing of Form 26QC: A penalty of ₹200 per day, subject to a maximum of the TDS amount.
- Late Issuance of Form 16C: A penalty of ₹100 per day, subject to a maximum of the TDS amount.
The reduction in the TDS rate under Section 194-IB from 5% to 2%, effective from 1st October 2024, is a significant change introduced in Budget 2024. This amendment is expected to benefit a large number of taxpayers, particularly individuals and HUFs who are not liable for tax audit under Section 44AB. By reducing the immediate financial burden on rent-payers and simplifying compliance requirements, this change could also have a positive impact on the rental market. It is crucial for taxpayers to understand these changes and ensure timely compliance to avoid penalties.
Frequently Asked Questions (FAQs):
- What is the threshold limit for TDS deduction under Section 194-IB?
- The threshold limit is ₹50,000 per month. If the rent exceeds this amount, TDS must be deducted.
- What is the new TDS rate under Section 194-IB effective from 1st October 2024?
- The new TDS rate is 2%, reduced from the previous rate of 5%.
- Is a TAN required for deducting TDS under Section 194-IB?
- No, a TAN is not required for deducting TDS under this section.
- What forms are required for compliance under Section 194-IB?
- Form 26QC (for TDS payment) and Form 16C (TDS certificate) are required.
By understanding these changes and adhering to the compliance requirements, taxpayers can avoid penalties and contribute to a more transparent tax system.
