This Will Be New TDS On House Rent From October 1, 2024

Union Budget 2024 brought many changes to the tax structure, TCS rates and TDS rates. Earlier this year on July 23, Finance Minister Nirmala Sitharaman announced a decline in Tax Deducted at Source (TDS) on house rent payments. TDS rate will come down to 2% from 5% for monthly rent payments beyond Rs 50,000 starting from October 1, 2024.

According to report, "as per provisions of section 194-IB, any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon."

"It is proposed that TDS under section 194-IB of the Act be reduced from 5% to 2%." The amendment will become effective beginning from October 1, 2024, according to memorandum to the Budget.

It is worth mentioning here that tenants paying Rs 50,000 monthly house rent or above have to get 5% deducted of the rental income as TDS, according to section 194-IB of Income Tax Act, 1961. The provision requires that TDS has to get deducted either at the end of the financial year, before monthly rent payments, or when rental agreement gets concluded, whichever comes first.

Section 194-IB was introduced in Budget 2017 to bring more rent-payers under the tax ambit, specifically those who were not accountable for audit under Section 44AB of the Income Tax Act. Before this, only Section 194-I handled deduction of TDS on rent. However, it was restricted to those individuals and Hindu Undivided Families (HUFs) who had to get their accounts audited. It left a large number of rent-payers outside the purview of TDS. Section 194-IB seeks to address this issue.

Section 194-IB necessitates that an individual or HUF, paying rent beyond Rs 50,000 per month to a resident, must deduct TDS on such payments. The TDS must be deducted at the time of crediting the rent to the payee's account or actual payment, whichever comes first.

Taxpayers deducting TDS under Section 194-IB need to file Form 26QC, a challan-cum-statement, within 30 days from the end of the month in which the TDS was deducted. The deductor has to issue Form 16C, a TDS certificate, to the payee within 15 days from the date of filing Form 26QC. Non-compliance may lead to penalties. It may include a penalty of Rs 200/ day for late filing of Form 26QC and Rs 100/day for late issuance of Form 16C.

The new amendment seeks to ease financial pressures on tenants by reducing the TDS rate, streamlining tax compliance, and creating a taxpayer-friendly approach.