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What is Section 194IA & 194IB under Income Tax Act?

Mar 20, 2020 | 4 months ago | Read Time: 4 minutes | By iKnowledge Team

Section 194 of the Income Tax Act deals with a slew of TDS payments. Two of the important sub-sections under this section are Section 194IA and Section 194IB. In order to understand the nitty-gritty of Section 194IA and 194IB, it is first necessary to fully comprehend what TDS means and its applicability.

What is TDS?

TDS (Tax Deducted at Source), as the name suggests, this is a tax deducted at the source of certain income received by a person. It is usually deducted by the remitter of the income and deposited with the Income Tax Department. In the case of Section 194IA and Section 194IB, TDS has to be deducted by the payer of the rent and the buyer of the property respectively.  TDS can be claimed while filing your Income Tax Returns.

What is Section 194IA of Income Tax Act?

Introduced in 2013, this section prescribes that a buyer of immovable property that costs more than Rs.50 lakhs is required to deduct TDS while paying the seller.

What is the rate of TDS for such deduction?

The rate of TDS for this deduction is 1%.

What are the conditions for the application of Section 194IA of Income Tax Act?

  • TDS is to be deducted by the buyer and not by the seller.
  • There is no TDS applicable under Section 194IA if the transaction is worth less than Rs.50 lakhs.
  • TDS has to be paid on the complete amount of sale and not just the amount above Rs.50 lakhs. For example, if you buy a property worth Rs.60 lakhs, TDS will be calculated on Rs. 60 lakhs and not Rs.10 lakhs.
  • For payment made in installments, TDS will be deducted on each installment.
  • Since September 2019, charges such as club membership, car parking, maintenance fees, advance fees, electricity fees have also been included under ‘consideration for immovable property’. This means that such charges attached to the property will also be added to the taxable amount.
  • PANs of both buyer and seller are mandatory for TDS deduction under Section 194IA. If the buyer does not obtain the seller’s PAN, the rate of TDS rises to 20%.

How to pay TDS under Section 194IA of Income Tax Act?

  • This TDS payment has to be made using Form 26QB.
  • It has to be paid within 30 days from the last day of the month in which the sale was conducted.
  • After payment of TDS, the buyer will receive Form 16B which they need to submit to the seller.
  • From 16B can be generated and downloaded from the TRACES portal.

What is Section 194IB of the Income Tax Act?

Section 194B mandates that individuals or Hindu Undivided Families (who aren’t liable for audit under Section 44AB) deduct TDS for rent payment made to an Indian resident. The rent amount should be more than Rs.50,000/month for this tax to be applicable.

What constitutes ‘rent’ under Section 194IB?

Rent constitutes payments made for a lease, tenancy, sub-lease or other arrangements for properties like

  • Land with factory
  • Land
  • Building with factory
  • Equipment
  • Machinery
  • Plant
  • Furniture
  • Fittings

When should the TDS on such rent be deducted?

TDS on rent under Section 194IB of the Income Tax Act has to be deducted on the earlier of the following

  • When rent is credited for the last month of the previous year or last month of tenancy in case the property is not being occupied anymore.
  • When rent is paid by cheque, draft, cash, or other modes.

What is the TDS rate under this Section?

The rate of TDS under Section 194IB of Income Tax Act is 5% if the tenant obtains the owner’s PAN. If they fail to do so, the rate is 20%.

How to pay TDS under Section 194IB?

This payment is required to be made through Form 26QC.

  • It can be made online or offline through an authorized bank.
  • Remember to collect Form 16C and submit it to the landlord.

When should TDS under Section 194IB be deposited?

  • If the rent is paid on behalf of the government, TDS has to be deposited on the very same day.
  • If payment is not on behalf of the government, TDS has to be deposited within 7 days from the last date of the month in which the deduction was carried out.
  • If payment was made in March, TDS deposit has to be made before the 30th of April.

Further information about Section 194IA and 194IB can be found on the official Income Tax Department website. Be sure to check all the rules carefully before entering into transactions covered under these Sections.

Conclusion

With the tax-filing season all set to take off, it is crucial that one is fully apprised of all such taxation rules and regulations. It is also paramount that one understands the ways in which they can reduce their income tax liability and, thereby lower their tax outgo.

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