TDS Under Section 194IB for Residential Rent: 2024 Rate Change & Compliance Guide

When leasing a residential property, individuals and Hindu Undivided Families (HUFs) that aren't under tax audits must withhold tax at source (TDS) as specified under Section 194IB of the Income Tax Act. This provision is relevant if the monthly rent exceeds Rs. 50,000.

In the Financial Year 2024-25, the government has adjusted the TDS rate from 5% to 2%, starting from 1st October 2024. Let’s examine how this adjustment affects the TDS calculation for a residential property rented at Rs. 1,00,000 per month from April 2024 to March 2025.

What is Section 194IB?

Section 194IB was established to promote TDS compliance for significant rental transactions. It applies in circumstances where:

• The tenant is either an individual or an HUF not undergoing a tax audit.
• The monthly rent exceeds Rs. 50,000.
• The deduction occurs only once in the financial year, coinciding with the last rent payment or when the tenant vacates the property.

• TDS is deducted at the time of each rent payment.
• The tenant does not need a TAN (Tax Deduction and Collection Account Number).
• TDS that has been deducted should be deposited using Form 26QC.
• A TDS certificate (Form 16C) must be given by the tenant to the landlord.

From now until 30th September 2024, the TDS rate stood at 5%. However, starting from 1st October 2024, the government has lowered this rate to 2%.

Now, let's assess how this change influences the TDS calculation for a residential property rented at Rs. 1,00,000 per month.

Scenario Overview

• Property Type: Residential House
• Monthly Rent: Rs. 1,00,000
• Duration: 12 months (April 2024 - March 2025)
• TDS Rate: 5% (April 2024 - September 2024), 2% (October 2024 - March 2025)

Now, let’s determine the TDS obligation:

Option A: Rs. 60,000

Calculation: (1,00,000 * 12 months * 5%) = Rs. 60,000

Incorrect! This calculation erroneously applies the 5% rate for the full year, neglecting the rate reduction effective from 1st October 2024.

Option B: Rs. 42,000

Calculation:

• For April to September 2024 (6 months at 5%): (1,00,000 * 6 months * 5%) = Rs. 30,000
• For October 2024 to March 2025 (6 months at 2%): (1,00,000 * 6 months * 2%) = Rs. 12,000

Total TDS = Rs. 30,000 + Rs. 12,000 = Rs. 42,000

Correct! This method appropriately applies both rates in accordance with the new tax legislation.

Option C: Rs. 24,000

Calculation: (1,00,000 * 12 months * 2%) = Rs. 24,000

Incorrect! This calculation assumes that the 2% rate applies for the entire year, which is not accurate.

Final Result: Rs. 42,000 (Option B)

Hence, the accurate TDS deduction for FY 2024-25 is Rs. 42,000, considering the 5% rate until September 2024 and the 2% rate starting from October 2024.

Step-by-Step Guide for Tenants

1. Deduct TDS at the time of the final rent payment (or when leaving the property).
2. Deposit the TDS amount to the government utilizing Form 26QC within 30 days from the deduction date.
3. Issue Form 16C to the landlord as evidence of TDS deduction.
4. File Form 26QC online through the Income Tax e-filing portal.

Important Dates for TDS Payment

Penalties for Non-Compliance

1. Who is liable for deducting TDS in accordance with Section 194IB?

The tenant (individual/HUF) is required to deduct TDS if the rent exceeds Rs. 50,000 monthly.

2. Is it necessary to have a TAN for TDS deduction?

No, tenants can submit TDS using their PAN along with Form 26QC.

3. When is TDS supposed to be deducted?

TDS should be deducted during the final rent payment of the financial year or upon vacating the premises.

4. What are the consequences of not deducting TDS?

Tenants may be subject to penalties, interest fees, and charges for late filing.

5. Can the landlord recover the deducted TDS?

Yes, landlords can claim TDS credits while filing their income tax returns.

Section 194IB mandates that significant residential rental transactions abide by TDS regulations. With the TDS rate change from 5% to 2% taking effect from 1st October 2024, accurate TDS calculation is essential. For FY 2024-25, the appropriate TDS deduction amounts to Rs. 42,000.

By being aware of the updated tax regulations and fulfilling the filing requirements, tenants can evade penalties and maintain proper tax compliance. For professional help with TDS filings, consider consulting a tax expert or utilizing an online tax filing platform.

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