CVOCA Gyaan Ganga– 26

TDS Payments by Certain Individuals - Part 2

In this publication we will cover certain payments under Section 194-IB and 194M of the Income Tax Act, 1961 and also try to answer few scenarios. It is to be noted that, 194-IB and 194M are applicable only for payment made to residents. If a payment is made to any non-resident then TDS will be deducted under Section 195.

Section 194 IB: TDS on Rent

Q 1. Who needs to deduct TDS under Section 194IB?

Ans. If you are an individual or a Hindu Undivided Family (HUF) (other than those engaged in business and if having business then gross receipts from business of preceding year less than 1 cr and in case of profession less than 50L) and are paying rent to a resident for tenancy, lease, sub-lease, or any other arrangement for the use of any land or building or both.

Q 2. When does Section 194IB apply?

Ans. It applies if the monthly rent you pay to a resident for any land, building, or both, or even machinery, equipment, furniture, or fittings, exceeds ₹50,000 per month or part of a month.

Q3. Will Section 194IB apply if rent paid exceeds more than ₹50,000 in one or more month but if aggregate payment made during the F.Y. does not Exceed ₹6,00,000?

Ans. Yes, Even if the aggregate payment made does not exceed ₹6,00,000 in a F.Y. but payment for a single month exceeds ₹50,000, you will be liable to deduct TDS.

Q4. What is the rate of TDS under Section 194IB?

Ans. The TDS rate is 2% from 01.10.2024.

Q5. When should an individual deduct the TDS?

Ans. TDS is deducted only once in a financial year:

  • At the time of crediting or paying the rent for the last month of the financial year (i.e., March); or
  • at the time of crediting or paying rent for the last month of tenancy, if you vacate the property before the financial year ends.

Whichever is earlier.

Q6. Is there a need to have TAN (Tax Deduction and Collection Account Number) to deduct TDS under Section 194IB?

Ans. No, individuals or HUFs deducting TDS under Section 194IB do not need to obtain a TAN. You can deposit the TDS using your PAN.

Q7. How does an individual deposit the deducted TDS with the government?

Ans. For Section 194-IB, you need to deposit the TDS using a "challan-cum-statement" in Form 26QC. This can be done online through the Income Tax e-filing portal.

Q8. What is the deadline for depositing the TDS?

Ans. If TDS is deducted under Section 194-IB then the same must be deposited with the government within 30 days from the end of the month in which you deducted the tax.

Q9. What if an individual fails to deduct or deposit TDS?

Ans. If you fail to deduct TDS or deposit it on time, interest @ 1% per month or part of month on the TDS amount that was not deducted or deposited is required to be paid. In addition to interest, late filing of Form 26QC may attract a late fee of ₹200 per day u/s 234E, and penalty u/s 271H for non-filing or incorrect filing.

Q10. Does an individual need to provide any certificate to the person from whom TDS is deducted?

Ans. Yes, after depositing the TDS, you (the tenant) need to issue a TDS certificate in Form 16C to the landlord as proof of the deduction. This form is usually available on the TRACES portal within 15 days of furnishing challan in form 26QC.

Section 194M: TDS on Commission, Brokerage, Contractual Work and Professional Fees

Q1. Who needs to deduct TDS under Section 194M?

Ans. If you are an individual or a Hindu Undivided Family (HUF) (other than those engaged in business and if having business then gross receipts from business less than 1 cr and in case of profession less than 50L) and are making payments for

  • Doing any contractual work (like construction, advertising, catering, or providing labor).
  • Providing professional services (like legal, medical, accounting, architectural, engineering, or interior decoration).
  • Paying commission or brokerage (excluding insurance commission).
Q2. Does Section 194M apply for all payments?

Ans. It only applies if the total amount you pay to a single contractor or professional for the specified services goes over ₹50 lakh in a financial year (April 1st to March 31st).

Q 3. What is the rate of TDS under Section 194M?

Ans. The TDS rate is to be deducted @ 2% for all payments made.

Q4. When should an individual deduct the TDS?

Ans. You need to deduct TDS at the earlier of these two times:

  • When you actually pay the money (by cash, cheque, or bank transfer).
  • When you credit the amount to the account of the contractor or professional (meaning, when you record the payment as due in your books).
Q5. Is there a need to have TAN (Tax Deduction and Collection Account Number) to deduct TDS under Section 194M?

Ans. No, individuals or HUFs deducting TDS under Section 194M do not need to obtain a TAN. You can deposit the TDS using your PAN.

Q6. How does an individual deposit the deducted TDS with the government?

Ans. You need to deposit the TDS using a "challan-cum-statement" in Form 26QD.

Q7. What is the deadline for depositing the TDS?

Ans. You must deposit the TDS with the government within 30 days from the end of the month in which you deducted the tax. For example, if you deduct TDS in July, you must deposit it by August 30th.

Q8. What if an individual fails to deduct or deposit TDS?

Ans. If you fail to deduct TDS or deposit it on time, you may have to pay interest. The interest rate is typically 1% per month or part of month on the TDS amount that was not deducted or deposited. In addition to interest, late filing of Form 26QD may attract a late fee of ₹200 per day u/s 234E, and penalty u/s 271H for non-filing or incorrect filing.

Q9. Does an individual need to provide any certificate to the person from whom TDS is deducted?

Ans. Yes, after filing Form 26QD, you can download Form 16D from the TRACES portal within 15 days of furnishing challan in form no. 26QD and provide it to the person to whom payment is made.

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This publication is intended to create awareness. Please consult your CA or financial advisor before taking any decision.

Team CVOCA