Reduced Rate of TDS Under Section 194IB from 1st October 2024
The government has introduced reduced rate of TDS u/s 194IB from 1st October 2024. The new TDS rate will be 2% of the rental amount instead of the earlier rate of 5%.
Renting has been a common method of TDS (Tax Deducted at Source) for a long time. Section 194I of the Income Tax Act, 1961, initially covered renting of land, buildings, and plant and machinery. However, this section did not apply to individuals and HUFs (Hindu Undivided Families) who were not required to undergo tax audit. To address this, Sections 194IB and 194IC were introduced. According to Section 194IB, individuals and HUFs who are not liable to tax audit under Section 44AB are now required to deduct taxes on rent paid to residents exceeding Rs 50,000 per month.
Section 194IB of the Income Tax Act, says that an individual or a HUF (not covered under Section 194-I) who pays rent exceeding ₹50,000 per month to a resident Indian is liable to deduct income tax at source.
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Get SupportRate of TDS The rate of TDS is 5% of the rent if the landlord provides the Permanent Account Number (PAN). A 20% tax should be deducted if the landlord does not have a PAN. However, TDS cannot be more than last month’s rent.
From 1st October 2024, the rate of TDS have been reduced to 2% of the rental amount.
When to deduct An individual or HUF is required to deduct the tax on the rental income at the following times:
- When the rental income is credited to the account of the property owner. The tenant must deduct the TDS at the time of paying the rent for the last month of the previous year or the last month of the tenancy if he/she vacates the property during the year.
- When payment is made in cash or through issue of cheque, draft or other mode.
Penalty for 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:
- 1% per month, or a portion thereof, on the TDS amount when you fail to deduct this TDS on or before the due date.
- 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.
- A penalty of Rs 200 per day for delay in filing the TDS return.
In conclusion, the reduced rate of TDS under Section 194IB from 1st October 2024 is a welcome move for individuals and HUFs who are not liable to audit under Section 44AB. However, it is essential to understand the provisions of Section 194IB and the reduced rate of TDS to avoid any penalties or interest.
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