Section 194 of the Income Tax Act of 1961 has several provisions pertaining to Tax Deducted at Source (TDS) payments. The two subsections, 194IA and 1941B are quite important in this section. These sub-sections include rules governing TDS cuts on rent for both the payer and the receiver or owner of the property.
Here’s everything you need to know about Sections 194IA and 194IB of the Income Tax Act:-
What Is TDS?
TDS (Tax Deducted at Source), as the name implies, is a tax deducted at the source of a person’s income. It is typically deducted by the income remitter and deposited with the Income Tax Department. TDS must be deducted by the payer of the rent and the buyer of the property in the case of Sections 194IA and 194IB, respectively. TDS can be claimed when you file your tax returns.
What Is Income Tax Act Section 194IA?
Introduced in 2013, this clause mandates that a buyer of immovable property worth more than Rs.50 lakhs deduct TDS when paying the seller.
What Is The TDS Rate For Such A Deduction?
TDS is levied at a rate of 1% for this deduction.
What Are The Conditions For Using Section 194IA Of The Income Tax Act?
- TDS must be paid by the buyer, not the seller.
- If the transaction is valued at less than Rs.50 lakhs, Section 194IA does not apply.
- TDS must be paid on the entire sale amount, not just the amount exceeding Rs.50 lakhs. For example, if you purchase a home worth Rs.60 lakhs, TDS will be calculated on that amount rather than Rs.10 lakhs.
- TDS will be deducted on each installment for payments paid in installments.
- Since September 2019, charges such as club membership, auto parking, maintenance fees, advance fees, and power fees have been included in the category of “consideration for immovable property.” This means that any charges associated with the property will be included in the taxable amount.
- Section 194IA requires both the buyer’s and seller’s PANs for TDS deduction. If the buyer does not receive the seller’s PAN, the TDS rate increases to 20%.
- Since September 2019, charges such as club membership, car parking, maintenance fees, advance fees, and power fees have been included in the category of ‘consideration for immovable property.’ This means that any charges associated with the property will be included in the taxable amount.
- Section 194IA requires both the buyer’s and seller’s PANs for TDS deduction. If the buyer does not receive the seller’s PAN, the TDS rate increases to 20%
How To Pay TDS Under Section 194IA Of The Income Tax Act?
- Form 26QB must be used to make the TDS payment.
- It must be paid within 30 days after the end of the month in which the sale took place.
- After TDS payment, the buyer will get Form 16B, which they must submit to the seller.
- The TRACES portal may create and download data starting with 16B.
What Is The Meaning Of Section 194IB Of The Income Tax Act?
Section 194B requires individuals or Hindu Undivided Families (who are not subject to audit under Section 44AB) to deduct TDS on rent paid to an Indian resident. For this tax to apply, the rent must be more than Rs.50,000 per month for this tax to apply.
What Is Rent Under Section 194IB?
Rent is defined as payments made for a lease, tenancy, sublease, or other arrangements for property such as a house.
- Land with factory
- Building with factory
When Should TDS Be Deducted On Such Rent?
TDS on rent is required to be deducted under Section 194IB of the Income Tax Act on the earlier of the following:
- When rent is credited for the previous year’s last month or the last month of the tenancy if the property is no longer occupied.
- When rent is paid in the form of a check, drafts, cash, or other means.
What Is The TDS Rate Applicable To This Section?
- If the tenant receives the owner’s PAN, the TDS rate under Section 194IB of the Income Tax Act is 5%. If they do not, the failure rate is 20%.
- If the payment is not made on behalf of the government, TDS must be deposited within 7 days after the end of the month in which the deduction was made.
- If the payment was made in March, the TDS deposit must be made before the 30th of April.
Documents Are Required:
While most people need a Tax Deduction Account Number (TAN) to make TDS deductions, buyers do not need one. They must, however, submit the following information:-
- Full name
- Residential address
- PAN card number
- Registered cellphone number and email address of the seller and buyer
- Property address
- Date of agreement and date of payment of the amount
- Total value of consideration
Comparison of Sections 194-IA and 194-IB of the Income Tax Act of 1961:
|Applicability||On payment for the transfer of Immovable Property.||On payment of the Property’s rent.|
|Condition on Payer||Any person who is not the person referred to in 194LA.||All Individuals and HUFs (not subject to audit under section 44AB).|
|Condition on Payee||Must be a Resident.||Must be a Resident.|
|Condition on Asset||Immovable property (other than agricultural land) of Rs.50 lac or more. Immovable property is defined as land or a building.||TDS is levied on the following items when rented or leased (if the rent exceeds 50,000 per month): – Building, land, land appurtenant to structure (including factory building), machinery, plant, furniture, equipment, and fittings.|
|Rate of TDS||TDS rate is 1% of payment.||TDS rate is 5% of payment.|
|Time for Deduction of Tax||When such sum is credited to the transferor’s account or when payment is made, whichever comes first.||When such cash is credited to the payee’s account for the last month of the previous year (or when a house is vacated during the year), or when payment is made, whichever comes first.|
|Application of TAN||It is not necessary to obtain TAN.||It is not necessary to obtain TAN.|
|Deposit of Tax to Govt. Account||Within 30 days of the end of the month in which the deduction was made.||Within 30 days of the end of the month from which the deduction was made.|
|Challan Cum Return Form||Form 26QB.||Form 26QB.|
|Certificate of TDS||The payee must get a TDS certificate in Form 16B within 15 days of the due date of the challan in Form 26QB.||The payer must provide the payee with a TDS certificate in Form 16C within 15 days of the due date of the challan in Form 26QC.|
With the tax-filing season quickly approaching, it is critical to be completely aware of all taxes rules and regulations. It is also critical that one understands how to reduce one’s income tax burden and, as a result, one’s tax outgo.
Before engaging in transactions covered by these Sections, double-check all of the rules. For further information on Sections 194IA and 194IB, please visit https://finaxis.in/services/.