Tax

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

LegalKart Editor
LegalKart Editor 04 min read 958 Views
Last Updated: Feb 27, 2024
Section 194IB of Income Tax Act

Section 194IA and it's essential

A person who purchases a property for more than INR 50 lakhs is required to deduct the necessary Tax Deducted at Source (TDS) while paying the seller, according to Section 194(IA), which went into effect in 2013. TDS is deducted at a rate of 1% of the amount to be paid.

Included in the consideration for the transfer are all fees, including parking costs, maintenance costs, power and water rates, and any advances of any kind relating to the property.

Any person that pays TDS in accordance with Section 194IA is exempt from Section 203A tax payments. 

When payments are made in installments, TDS is subtracted from each installment. The rate of TDS deduction is 20% if the buyer or seller does not have a PAN card.

Exceptions:

  • Except for individuals who fall under Section 194LA, this section applies to every individual who purchases a property for more than INR 50 lakhs.

  • This Act does not cover the purchase of agricultural land.

  • If the transaction does not exceed INR 50 lakhs, there is no deduction.

Section 194IB and it’s essential

Any person, including individuals and HUFs who are exempt from audit under Section 44AB, is required by Section 194IB to deduct taxes from rent payments to residents that exceed INR 50,000 per month.

Rent is a payment made by a payee under a tenancy, lease, sublease, or any other arrangement formed for assets, as in

  • Land

  • Land, including a factory building

  • Building, including a factory building

  • Machinery

  • Furniture

  • Equipment

  • Plant

  • Fittings

The aforementioned assets may or may not belong to the payee.

 

Any person who is qualified for a TDS deduction under Section 194IB is exempt from the requirement to pay tax under Section 203A.

If the person is covered by Section 206AA, the deduction made cannot be greater than the rent paid for the final month of the rental agreement or the final month of the preceding year.

TDS deduction will be 20% if the tenant does not have the homeowner's PAN card.

TDS deposition must take place on the same day if the rent is paid on the government's behalf. The deposition must be submitted within a week of the month's end if the rent payment is not being made on the government's behalf.

How to pay TDS 

  • Form 26QB must be used for TDS payment. The TDS deposition must take place no later than one calendar month after the sale's final day. They will obtain Form 16B after depositing the TDS. Through the TRACES site, Form 16B can be generated and downloaded. Then, the buyer must provide this form to the seller.

  • According to Section 194IB, the TDS payment must be made in a similar manner using Form 26QC, and then Form 16C must be submitted to the homeowner.

Penalty in the case of non-deduction or delay

Interest at a rate of 1.5% per month would be payable in the event that TDS was taken out but not paid. The buyer/tenant would be obligated to pay 1% interest monthly on the amount that was not deducted from the TDS if it had not been done so.

The income tax officer has the authority to impose a fine of up to Rs. 1 lakh for the late deposit of TDS on the property.

Form 26QB Late Filing Penalty: If the TDS Return is filed late, a fine of Rs. 200 per day will be assessed. The Penalty shall, however, not be greater than the TDS for which this Form has not been submitted.

Tabular Comparison of Section 194IA & 194IB

BASIS

SECTION 194IA

SECTION 194IB

Applicability 

Following the transfer of immovable property

Upon payment of the property's rent

Condition of payer

Any person other than a person referred in 194LA 

All individuals & HUF (not liable for audit u/s 44AB) 

Condition on payee

Must be a resident of India

Must be a resident of India

Condition of Asset

Immovable property (other than agriculture land) having the value of Rs. 50 lac or more. Immovable property means land or building.

TDS is applicable for renting and leasing of (if rent exceeds 50,000 p.m.): - Building, land, land appurtenant to structure, incl. factory building, machinery, plant, furniture, equipment, fittings. 

Rate of TDS

1% of TDS

5% of TDS

Time of Deduction

At the time of credit or the time of payment, whichever is earlier.

At the time of credit of such sum or at the time of payment whichever is earlier

TAN

Not required

Not required

Deposit of tax to the government

Within 30 days from the end of the month in which deduction made 

Within 30 days from the end of the month in which deduction made

Challan cum return form

Form 26QB

Form 26QC

TDS

certificate of TDS in Form 16B needs to be furnished within 15 days from the due date of providing challan. 

certificate of TDS in Form 16B needs to be furnished within 15 days from the due date of providing challan.

 

Conclusion

Section 194IA of the Income-tax Act addresses the obligation for TDS deduction by the buyer at the time of purchase of the property, while Section 194IB addresses tax deducted at source on payment of rent. In case there is non-filing or late filing of TDS statements, it will attract severe implications. Also, there are penalties in case Form 26QB & 26QC are not filed. 

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