Section 194IA and Section 194IB

What are Section 194 IB and Section 194 IA of the Income Tax Act?

Section 194(IA) came into force in 2013 and states that any individual who buys a property worth over INR 50 lakhs must deduct the appropriate TDS when paying the seller. The rate of TDS deduction in such cases is 1% of the amount to be paid.

Meanwhile, as per Section 194B, all individuals, and Hindu Undivided Families who do not fall under Section 44AB must deduct TDS for the payment of rent to an Indian homeowner. For this Act to be applicable, the rent aid must be greater than INR 50,000 per month. The payment of a lease, sub-lease, or tenancy in any of the following properties may be considered ‘rent’ under Section 194IB.

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

Checklist for Section 194IA

• Any individual who pays a resident any money as a consideration exceeding the threshold for purchasing an immovable property, except those who come under Section 194LA, are eligible under Section 194IA of the Income Tax Act.
• The purchase of agricultural land does not come under the purview of this Act.
• The TDS must be deducted at the time of credit, or payment, in cash or when a cheque or demand draft is issued at the rate of 1%.
• No deduction is made when the transaction is worth less than INR 50 lakhs.
• The consideration for the transfer includes all charges, including parking fee, maintenance charges, electricity and water fees, and the advance of any nature connected to the property.
• Any individual who pays TDS according to Section 194 IA will not have to pay taxes as per Section 203A.
• If the payments are made in instalments, then the TDS is deducted on each instalment. Additionally, if the buyer or seller does not have a PAN card, the rate of TDS deduction is 20%.

Checklist for Section 194IB

• Any individual or HUF that pays a rent exceeding INR 50,000 every month must deduct 5% as TDS as per Section 194IB.
• The TDS deduction will occur on the income credited as the rent for the last month of tenancy, or last month of the year before in case the property is vacated mid-year.
• The provision to pay tax under Section 203A will not apply to any individual who is eligible to TDS deduction under Section 194IB.
• In case the individual falls under the purview of Section 206AA, the deduction made will not exceed the rent paid for the last month of tenancy or the last month of the penultimate year.
• If the tenant does not have the homeowner’s PAN card, then the TDS deduction will be at 20%.
• The payment of TDS occurs through Form 26QC, which may be filed either online or offline. The tenant also needs to submit Form 16C to the landlord.
• In case the rent is paid for the government, TDS deposition must occur on the same day. In case the rent payment is not on behalf of the government, the deposition must be made within a week of month-end.

What is TDS?

TDS stands for Tax Deducted at Source. It is a system of collecting tax at the source of income. Under this system, the person making the payment (the deductor) is required to deduct tax from the payment and deposit it with the government. The person receiving the payment (the deductee) can claim the TDS as a deduction against their total tax liability.

How to pay TDS as per Section 194IA of the Income Tax Act?

The payment of TDS must occur through Form 26QB. The TDS deposition should occur within a month of the last day of the month in which the sale took place. Once they deposit the TDS, they will receive Form 16B. Form 16B may be generated and downloaded through the TRACES portal. The buyer must then submit this form to the seller.

• To file Form 26QB, click on this link.
• In case you are a corporate taxpayer, choose 0020 and if not 0021.
• Fill in all the required details and click on Proceed.
• You can now choose between paying immediately via net banking or e-payment at a later date by visiting a bank branch.
• If you choose the net-banking option, you can log in to your bank portal and make the payment online. After making the payment, you can print out a copy of the Challan 280 which will have a tick on 800, which indicates payment of TDS on property.
• If you choose the other option, you can generate a receipt for Form 26QB with a unique acknowledgment number. This slip will remain valid for ten days during which you may visit a bank and deposit your cheque for the same.
• In case this is your first time, you will have to register on the TRACES portal using your PAN Card number and Challan number.
• After registering, download an approved Form 16B from the website after providing PAN details of the seller.
• Submit this to the seller and make sure the payment is reflected under Part F of your Form 26AS a week after paying.

The TDS payment must be made similarly through Form 26QC, followed by the submission of Form 16C to the homeowner as per Section 194IB.

Penalty in the case of non-deduction or delay

The penalty for non-deduction or delay in TDS is as follows:

• If the TDS is not deducted, the deductor will be liable to pay a penalty of up to 1% of the amount of TDS that should have been deducted.
• If the TDS is deducted but not deposited with the government, the deductor will be liable to pay a penalty of up to 20% of the amount of TDS that was deducted.
• The deductor will also be liable to pay interest on the delayed payment of TDS.

Documents or details required.

While in typical situations an individual requires a Tax Deduction Account Number for making TDS deductions, buyers do not need to obtain a TAN. However, they must provide the following details.

• Full name
• Residential address
• PAN card number
• Registered mobile number and email address of the seller and buyer
• Address of the property
• Date of agreement and date of payment of the amount
• The total value of consideration

Why Vakilsearch

Vakilsearch is India’s largest professional platform of lawyers, chartered accountants, and company secretaries-with years of experience behind. We execute legal work for over 1000 companies and LLPs every month, by leveraging our tech capabilities, and the expertise of our team of legal professionals.

9.1 Customer Score

We make your interaction with the government as smooth as possible by doing all the paperwork for you. We will also give you absolute clarity on the process to set realistic expectations.

300-Strong Team

With a team of over 300 experienced business advisors and legal professionals, you are just a phone call away from the best in legal services.

Access To Experts

We provide access to reliable professionals and coordinate with them to fulfil all your legal requirements. You can also track the progress on our online platform, at all times.

Realistic Expectations

By handling all the paperwork, we ensure a seamless interactive process with the government. We provide clarity on the incorporation process to set realistic expectations.