194IB -TDS on Rent w.e.f 01.06.2017 in case of Individual and HUF not liable for Audit

By | May 16, 2017
(Last Updated On: May 16, 2017)

Section 194IB – of Income Tax Act [ TDS on Rent ]

[ Section 194IB – Deduction of tax at source on Rent in the case of certain Individuals and Hindu undivided family ]

TDS on Rent 194IB and 194I Flow Chart

*Tax Audit –

For Business:-

 -If Turnover exceeds Rs 1 Crore for Business  in last year  immediately preceding the financial year

 – If Section 44AD(4) is applicable w.e.f 01.4.2017  and income exceeds maximum amount not chargeabke to income tax in last year  immediately preceding the financial year

Profession  :-

-If Turnover exceeds  Rs 25 Lakh ( Rs 50 Lakh  w.e.f 1.4.2017)   in last year  immediately preceding the financial year

-If Professional opt for 44ADA and Profit less than prescribed u/s 44ADA w.e.f 01.4.2017  in last year  immediately preceding the financial year

**W.e.f 01.06.2017 – Rent paid/ credited Exceeds Rs 50000 Per month or part of the month during Financial year

*** Inserted by the Finance Act, 1994, w.e.f. 1-6-1994.

****Inserted by the Finance Act 2017 w.e.f  01.06.2017

Summary of TDS on Rent under Section 194IB :

  • Section :- Finance Act 2017  inserted a new Section 194IB in the Income Tax Act.
  • Date of Applicability: This amendment of Deduction of TDS on Rent under Section 194IB will take effect from 1st June, 2017.
  • Amount of Rent and Rate of TDS  :- It Provides that  Individuals or a HUF (other than those covered under 44AB of the Act ) Read TDS on Rent -Complete Guide-194I for Individual and HUF covered in 44AB  ] responsible for paying to a resident any income by way of rent exceeding Rs 50000 for a month or part of month during the previous year, shall deduct an amount equal to 5 % . of such income as income-tax thereon.
  • Revision in Rent during the year :- Example, suppose, during the year, rent is paid at Rs. 45,000 per month for first half of the year and subsequently, it is increased to Rs. 60,000 per month for remaining period; in such circumstances, the tax is required to be deducted in respect of rent paid at Rs. 60,000 during second half of the year. [ However Clarification is awaited from Income tax department]
  • “Rent”  means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.
  • Examples of transactions on which TDS may be required to be deducted u/s 194IB
    • Hotel Room rent : Payment made to the hotels for rooms hired may constitute a rent under the section 194IB. [ CBDT Circular No. 715, dated, 8-8-1995 point no 20 and Circular No. 5, dated 30-7-2002 ]
    • Part of Land or Building : Rent paid for use of part or portion of the land or building  e.g Rent paid for flat in a housing society etc (Refer Q No 5 of CBDTCircular number 718, dated 22.08.1995 )
    • Query No. 5 : Whether section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?
      Answer : Yes, the definition of the term “any land” or “any building” would include a part or a portion of such land or building.”

    • Sub lease: The definition of the rent includes any payment under lease, sub-lease or tenancy.
    • Lease Premium :– In case of lump sum lease payment or one time upfront lease charges. [However  CBDT vide Circular No. 35, dated 13-10-2016 has also clarified that TDS under section 194-I is not required in case of lump sum lease payment or one time upfront lease payment]
    • Deposit or advance Rent : If deposit is treated as advance rent then TDS is required to be deducted on adjustment of such deposit against rent.
    • In the context of section 194-I, the CBDT vide Circular No. 718, dated 22-8-1995 clarified as under:
      Query No. 2 : Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant?
      Answer : In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or the building, etc., and, therefore, partakes of the nature of rent as defined in section 194-I. If, however, the deposit is refundable, no tax would be deductible at source. It is further clarified that if the deposit carries interest, the tax to be deducted on the amount of interest will be governed by section 194A of the Income-tax Act.”

    • Warehousing Charges : For section 194-I, the CBDT vide Circular No. 718, dated 22-8-1995 clarified that TDS is required to be deducted on warehousing charges. Therefore it may be concluded that TDS is required u/s 194IB if warehousing charges Paid exceeds Rs 50000 p.m or part of month.However if  warehousing charges include payment for other facilities, then it needs to be determined on what value TDS is required to be deducted u/s 194IB on case to case basis.
      • Query No. 3 : Whether the tax is to be deducted at source from warehousing charges ?Answer : The term ‘rent’ as defined in Explanation (i) below section 194-I means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land. Therefore, the warehousing charges will be subject to deduction of tax under section 194-I.”
    • Rent paid for use of ground, hall, etc. on occasion of functions, events, etc.
  • Exclusions form Rent :
    • TDS is required to be deducted only in respect of the income which is chargeable to tax and not otherwise. Thus rent Rent Paid for agricultural land may not be covered by this section 194IB as the agriculture income is exempt u/s 10(1).
    • As per rent definition, the payment of rent for use of land or building or both would be covered. Thus it will not cover rent paid which is not for use of land or building or both .Example :- If the amount of rent includes payment for use of furniture etc., it would not constitute rent as defined under the section 194IB.
  • When to Deduct TDS :- Tax shall be deducted on such income at earliest of following :-
    • Credit of rent to the account of the payee for the last month of the previous year or
    • Credit of rent to the account of the payee for the last month of tenancy if the property is vacated during the year,
    • At the time of payment in cash or by issue of a cheque or draft or
    • At the time of payment by any other mode

If actual payment of rent is not made during the year but it is credited to the account of the payee for the last month of the previous year that is anytime during the month of March, the tax is required to be deducted in the month of March. Similarly, if the property is vacated during the year and the amount is credited to the account of the payee in the last of month of tenancy, the tax is required to be deducted in that month.

  • Payer to deduct TDS  :– Payer of the rent must be an individual or a HUF other than those covered under section 194-I. Thus an individual like salaried person, farmer, whose income is exempt or may be below taxable limit, etc. may have to comply with the section, if rent exceeding Rs. 50,000 is paid. Even non-resident in certain cases have to comply with provision of the section 194IB.
  • Payee :- The payee (To whom rent is paid) would be any person being a resident. In other words, provision of the section would not apply to non-resident payee. Any payment of rent to the non-resident would be governed by section 195.
  • TDS rate if PAN of Payee Not Available :- TDS on  rent shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be. [ Section 194IB(4)]
  • As per section 206AA, any person who is entitled to receive any income, sum or amount on which tax is to be deducted at source under Chapter XVII-B of the Act, he shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax. If he fails to furnish PAN, tax shall be deducted at the higher of the following rates, namely—

    (i)           at the rate specified in the relevant provision of the Act; or
    (ii)          at the rate or rates in force; or
    (iii)         at the rate of twenty per cent.

    Sub-section (4) of section 194-IB provides that in a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

    Accordingly, if the payee does not furnish his PAN, though the rate of deduction of tax would be the higher of the above but the maximum TDS liability in view of the provision of sub-section (4) of section 194-IB would be the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

    Illustration : On 01.04.2018, Mr. A agreed to pay rent of Rs.80,000 per month for use of premises to Mr B. There is no payment during the year. However, it is credited to his account on 31-3-2019; Mr. B does not furnish his PAN to Mr. A.

    The TDS liability of Mr. A would be as under:

    Total rent for the period April, 2018 to March, 2019 (Rs.80,000 per month × 12 months) 9,60,000
    Tax deductible at source in March, 2019 (Rs. 9,60,000 × 20%) 1,92,000
    However, the TDS would be restricted to payment of rent for the last month of the previous year. 80,000
  • TAN not required : Deductor of TDS on Rent under Section 194IB shall not be required to obtain tax deduction account number (TAN)
    • Section 203A, inter alia, provides that every person deducting tax at source in accordance with the provision of the Chapter XVII should obtain ‘tax deduction account number’ (TAN).However, section 194-IB(3) provides that the provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provision of that section. In other words, the person deducting tax at source as per the section need not obtain TAN.
  • Read : 194IB TDS  on what portion of Rent ? if rent increased to 50000 p.m during the year; Budget 2017-18 Suggestions
  • Meaning of Any other agreement or arrangement used in section 194IB:- The expression “any other agreement or arrangement” is not defined in the section.In the context of the provision, the TDS would require to be deducted on payment of rent made under any other agreement or arrangement. In the context of section 194-I, the meaning of the expression “any other agreement or arrangement” is explained by High Court in case of Krishna Oberoi v. UOI [[2002] 123 Taxman 709 (AP)] as under :

    “9. The expressions ‘any payment, by whatever name called’, and ‘any other agreement or arrangement’ occurring in the definition of the term ‘rent’ in Explanation to section 194-I have widest import. According to Black’s Law Dictionary, the word ‘any’ is often synonymous with either ‘every’ or ‘all’. Its generality may be restricted by the context in which that word occurs in a statute. The Supreme Court in Lucknow Development Authority v. M.K. Gupta AIR 1984 SC 787 dealing with the use of the word ‘service’, in the context it has been used in the definition of the term in Clause (o) of section 2 of the Consumer Protection Act, has opined that the word ‘any’ indicates that it has been used in wider sense extending from ‘one to all’. In G. Narsingh Das Agarwal v. Union of India [1967] 1 MLJ 197 the Court opined that the word ‘any’ means ‘all’ except where such a wide construction is limited by the subject-matter and context of the statute. The Patna High Court in Ashiq Hassan Khan v. Sub-Divisional Officer, AIR 1965 Pat. 446 (DB) and Chandi Prasad v. Rameshwar Prasad Agarwal AIR 1967 Pat. 41 has held that the word ‘any’ excludes ‘limitation or qualification’. In State of Kerala v. Shaju [1985] Ker. LJ 33 the Court held that the word ‘any’ is expressive. It indicates in the context ‘one or another’ or ‘one or more’, ‘all or every’, ‘in the given category’; it has no reference to any particular or definite individual, but to a positive but undetermined number in that category without restriction or limitation of choice. Thus, having regard to the context in which the expressions ‘any payment’ and “any other agreement or arrangement” occurring in the definition of the term “rent” (have been used) it only means each and every payment (that has been) made to the petitioner-hotel under each and every agreement or arrangement with the customers for the use and occupation of the hotel rooms.”

  • Comparative Analysis of TDS on Rent u/s 194I and u/s 194IB
TDS on Rent
Section 194I Section 194IB
Applicability It is Applicable to

ii) Every person paying rent (Except Individual and HUF)

ii)  Individual and HUF if doing business and and covered in Tax Audit ( Turnover exceeds Rs 1 Crore for Business/ 25 Lakh for Profession) in Last year immediately preceding the financial year in which such income by way of rent is credited or paid

Every Individual and HUF not covered in 194I
Date of Applicability  Inserted by the Finance Act, 1994, w.e.f. 1-6-1994. Inserted by the Finance Act 2017 w.e.f  01.06.2017
Rate of TDS i)  2%  for the use of any machinery or plant  or equipment;

ii) 10% for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings
5%
Limit TDS to be deducted if rent paid/ credited Exceeds Rs 180000 Per annum TDS to be deducted if rent paid/ credited Exceeds Rs 50000 Per month or part of the month during Financial year
Period TDS to be deducted at the time of credit or payment of rent  whichever earlier. TDS to be deducted at earliest of following :-

  • Credit of rent to the account of the payee for the last month of the previous year or
  • Credit of rent to the account of the payee for the last month of tenancy if the property is vacated during the year,
  • At the time of payment in cash or by issue of a cheque or draft or
  • At the time of payment by any other mode
TAN No Tax Deduction Account number is required to deduct tax Tax Deduction Account number is not required to deduct tax

Section – 194IB of Income-tax Act, 1961 after  Finance Act 2017

[Payment of rent by certain individuals or Hindu undivided family

Inserted by the Finance Act, 2017, w.e.f. 1-6-2017

194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent of such income as income-tax thereon.

(2) The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Explanation.—For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.]

Budget Speech of Arun Jaitley on 01.02.2017 – TDS on Rent under Section 194IB

Annex III to Part B of Budget Speech (para 1.5 of Direct Taxes)

” It is proposed to introduce a new provision in the Income-tax Act to provide for tax deduction at source at the rate of five per cent by an individual or HUF, other than those whose books of account are required to be audited, while making payment of rent of an amount exceeding Rs. 50,000 per month. It is also proposed to provide that such tax shall be deducted and deposited only once in a financial year through a challan-cum-statement. Further, the deductor shall not be required to obtain TAN or file any separate TDS return for this purpose. “

As per Clause 63 and Clause 64 of  Finance Bill 2017

Clause 63 of Finance Act 2017

The existing provisions of section 194-I of the Act, inter alia, provide for deduction of tax at source at the time of credit or payment of rent to the account of the payee beyond a threshold limit.

It is further provide that an Individual or a Hindu undivided family who is liable for tax audit under section 44AB for any financial year immediately preceding the financial year in which such income by way of rent is credited or paid shall be required to deduction of tax at source under this section.

Therefore, under the existing provisions of the aforesaid section, an Individual and HUF, being a payer (other than those liable for tax audit) are out of the scope of section 194-I of the Act.

In order to widen the scope of tax deduction at source, it is proposed to insert a new section 194-IB in the Act to provide that Individuals or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.

It is further proposed that tax shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

In order to reduce the compliance burden, it is further proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act. It is also proposed that the deductor shall be liable to deduct tax only once in a previous year.

It is also proposed to provide that where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

It is also proposed to define the term “rent” for the purposes of this section to mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

This amendment will take effect from 1st June, 2017.

Clause 64 of Finance Act 2017

Clause 64 of the Bill seeks to insert a new section 194-IC in the Income-tax Act relating to deductions in respect of

payment under specified agreement.

The proposed new section seeks to provide that notwithstanding anything contained in section 194-IA, any

person responsible for paying to resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent. of such sum as income-tax thereon.

This amendment will take effect from 1st April, 2017.

Relevant Extract of Inserted new section 194IB 

Payment of rent by certain individuals or Hindu undivided family.

63. After section 194-IA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of June, 2017, namely:—

‘194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.

(2) The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Explanation.—For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.’.

 

Relevant Extract of Inserted new section 194-IC

Payment under specified agreement.

64. After section 194-IB of the Income-tax Act as so inserted, the following section shall be inserted, namely:—

“194-IC. Notwithstanding anything contained in section 194-IA, any person responsible for paying to a resident any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45, shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent. of such sum as income-tax thereon.”

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