Things you should know about Challan 26QC and Form 16C for TDS deduction on Rent

With an intent to bring the high rental income groups under the GST regime, the government of India has introduced Section 194-IB, under the Income Tax Act, 1961, in the Union Budget 2017. As per this section of the Finance Act, 2017, tenants (individuals and HUFs) who pay more than Rs.50,000 as house rent a month will have to make Tax Deduction at Source (TDS) at 5% of the monthly rent. The tax must be deducted by the tenant at the time of paying the rent to the landlord. The deducted tax has to be deposited to the Government’s Account through any of the authorised bank branches.

Earlier till 31 March 2017, as per the Tax rule, tenants were mandated to deduct TDS at the rate of 10% only if they come under the ambit of tax audit (u/s 44AB). This means, such tenants who are not covered under tax audit were not required to deduct TDS regardless of the amount they pay as rent. However, under the new tax rule applicable from 1 June 2017, such tenants are also mandated to deduct TDS at the rate of 5% if the rent that they are paying exceeds Rs.50,000. To make it clearer, now tenants who pay house rent of more than Rs.50,000 per month must deduct tax from the rent.

When the TDS has to be deducted

Ideally, the tax on rent has to be deducted and the withholding amount should be paid to the government on a monthly basis at the time of paying the rent. However, in order to reduce the hassles for the tenants, it has to be deducted and deposited only once at the end of a financial year or at the end of the occupancy. The tax amount can either be debited when an individual pays the rent to the account of his/her landlord for the last month of the financial year or in the last month of the occupancy if the tenant is vacating the property during that year. TDS can also be debited from the account of the landlord once the rent gets credited to his/her account, whichever comes earlier.

What is the process of paying TDS on rent?

The TDS that is deducted on rent by the tenant should be electronically deposited to the Government’s Account by filling a challan-cum-statement in Form No 26QC within 30 days from the end of the month during which the tax has been deducted. After 15 days of remitting the TDS through Challan 26QC in any of the branches that is authorised, the tenant has to issue a certificate of TDS deduction to the landlord in Form 16C. Here are further details of TDS deduction and remittance:

  • Payment of TDS on rent through Challan 26QC

In order to deduct the TDS on rent by submitting a challan-cum-statement, a tenant needs to have the PAN of the landlord. The TDS that is deducted through challan-cum-statement in Form 26QC on rent by the tenant will be processed electronically through any of the bank branches authorised by the government. This form is available on the government tax e-filing website at https://www.tin-nsdl.com/. The tenants can either print or download the form online by visiting this link – https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp Click ‘Proceed’ under TDS on Rent of Property (Form 26QC) to access the form.

  • Issuance of TDS certificate for rent in Form 16C

The government has introduced a new TDS certificate as Form No. 16C. The form shows the tax deducted and deposited by the tenant to the Government’s account. After deducting TDS on rent, a tenant has to furnish a TDS certificate in Form 16C to the landlord. The certificate should be issued by the tenant within a period of 15 days from the last date of submitting the challan-cum-statement in Form 26QC. The form can be downloaded online only from the TRACES website at https://www.tdscpc.gov.in/app/login.xhtml

In case a tenant fails to deduct TDS on rent or deposit it in the Government’s Account within the specified time, it may result in penalty and interest. Besides these, non-payment of the withholding tax may also lead to further consequences. Hence, it is important for the tenants who pay more than Rs.50,000 as rent to be aware of. For any query or confusion regarding TDS deduction on rent, they can write to the tax department.

Additionally if you want to know about more details on TDS, Bankbazaar provides What is TDS, How to make TDS Payment Online, TDS Rate Chart, Union Budget 2019-20 changes on TDS etc.

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