Section 194IB of Income Tax Act

Section 194IB of the Income tax act would deal with the tax deducted at source on payment of the rent. Section 194IB was initially introduced to bring the joint development agreement of real estate under the preview of TDS.

An agreement between the owner of the asset and the developer is called the joint development agreement.

Meaning of Section 194IB of the Income Tax Act

Based on TDS on rent 194 IB, it is essential for anyone to deduct taxes for rent paid to a resident, which is exceeding Rs. 50,000 for a month. 

Rent Based on 194 IB TDS

Based on the Section 194IB, rent will mean a payment made by the payee under a tenancy, lease, sub-lease, or even any other arrangement that is made for assets like-

  • Equipment
  • Plant
  • Fittings
  • Machinery
  • Furniture
  • Land
  • Land that includes a factory's building
  • The building that is inclusive of a factory building
  • The payee may or may not own the assets that are mentioned above.

Need for TDS Deduction

TDS must be withheld by individuals or HUFs prior to the earlier of:

  • When the rent is credited (for the final month of the prior year or the final month of the lease if the property is abandoned earlier in the year), or

  • When the payment is made (via cash or cheque or draught or any other mode).

Time Limit of TDS Deduction

  • When the government makes the payment, it does it on the same day (without using any challan form).

  • When tax is paid along with an income-tax challan, the payment must be made on or before seven days from the end of that month in which the deduction had been made if it is not made to the government. If the money is credited or paid in March, it must be done before April 30. If it isn't, it must be done seven days after the end of the month from which the deduction was made.

Rate of Section 194IB

The rate of tax is 5% when the payment exceeds Rs. 50,000 and the landlord's PAN is given. In the case PAN is not available, then the TDS of 20% would be applicable.

Penalty for the Non-Deduction

The deadlines for deducting and depositing TDS as well as submitting the TDS return must always be kept in mind. Interest and penalties will apply if the due dates are missed or not met.

These interest rates and fines include:

  • You must pay interest of 1% per month, or a portion thereof, on the TDS amount when you fail to deduct this TDS on or before the due date. From the day you should have deducted TDS to the actual date of deduction, interest will be charged.

  • You must pay interest of 1.5% per month, or a portion thereof, on the TDS amount if you deduct the TDS but do not deposit it to the credit of the Central Government. From the deadline for TDS deposit until the day when TDS is actually deposited, interest will be charged.

  • You must also submit a TDS return in Form No. 26QC, and any delay in doing so will result in penalties. From the deadline for filing the TDS return to the filing date, there will be a penalty of Rs 200 per day. The penalty cannot be greater than the entire TDS amount.

Difference Between Section 1941 and 1941B

Here is a table of the significant differences between the two sections:

Section 194I

Section 194IB

Section 194I applies to anyone who is a resident, including the individual and HUF, who is liable for the tax audit.

Section 194IB applies to resident individuals and HUF who are not liable to tax audits under Section 44AB.

Section 194I is deductible at the time of credit of rent or payment in cash or any other mode, which one comes earlier.

The last month to deduct TDS on Section 194IB is in the last month of the financial year or even the last month of the tenancy.

The rate of TDS for Section 194I is 10% on the land or building or for both. 10% on the furniture and the fittings. 2% on the machinery or the plant and equipment.

The rate of TDS for Section 194IB is 5% on land and buildings.

The monetary limit for Section 194I is the rent of Rs. 2,40,000 for the financial year.

The monetary limit of rent is Rs. 50,000 for a month.

TAN is mandatory for this section.

There is no TAN required.

The TDS certificate is done through Form 16A.

The TDS certificate is through Form 16C.

The TDS return is through Form 26Q.

The TDS return is through Form 26QC.

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