As per Section 194IB, it is mandatory for persons such as individuals / HUF not liable to audit u/s 44AB to deduct tax for rent paid to a resident exceeding a sum of Rs. 50,000 per month. This also applicable to all salaried individuals fulfilling the criteria.
When Should TDS Be Deducted?
Tax must be deducted at the time whichever is earlier of the following:
- Making payment to the landlord, or
- Providing for the rent by giving credit to the landlord’s account
In certain cases, the full amount of rent may not be paid or credited during the financial year. To address this, the law provides for deemed credit of the pending amount in either of the following situations:
- 1. The last month of the financial year:If the tenant continues occupancy through the year and hasn’t provided for or paid the full rent, the pending rent amount will be deemed credited in March.
- 2. The last month of tenancy:If the tenancy ends before the financial year concludes, the pending rent amount will be deemed credited in the final month of the tenancy.
This provision ensures that TDS is deducted and deposited even if there are delays or irregularities in the actual rent payments or accounting entries. This ensures that the TDS obligation is fulfilled in a timely manner, aligning with the monthly rent payments or accounting provisions.
TDS Rates
The applicable TDS rate under Section 194IB is as follows:
- 2% (effective from 1st October 2024 onwards). Prior to this date, the rate was 5%.
- If the landlord does not have a valid PAN, TDS is deducted at a higher rate of 20%.
No Requirement for TAN
Unlike other TDS provisions, tenants deducting TDS under Section 194IB do not need to obtain a Tax Deduction Account Number (TAN). This simplifies compliance for individuals and HUFs.
Why Is Timely Deduction Important?
- Interest penalties for late deduction at the rate of 1% per month or part of the month.
- Interest for late deposit at 1.5% per month from the date of deduction.
- Additional penalties under Section 271C for non-compliance.