Section 194IC of the Income Tax: TDS On Rent Payment Under Joint Development Agreement (JDA)
Section 194IC of the Income Tax Act states that any individual who pays rent to a landlord under a Joint Development Agreement (JDA) should deduct TDS (Tax Deducted at Source). Besides, the JDA is an agreement where an owner of land or building allows another person to build a real estate project on that property. If you are paying rent, you must know about Section 194IC. Keep reading to get all the details.
What is Section 194IC of Income Tax?
The Government of India introduced Section 194IC joint development agreement of real estate under the scope of TDS. Further, the ministry of finance introduced this section during the 2017 budget.
For example, an individual owns a piece of land or a building (or both). This individual may give the assets to a builder who will then construct a house or a building on that property. Further, the builder will sell the building that he built on that leased property. Now he can give some flats to the property owner, and in addition, he can also offer him cash. So, if a builder is paying an individual in cash, cheque or draft, he needs to deduct the TDS.
What is Joint Development Agreement under Section 194IC?
A joint development agreement is a registered contract between a property owner and a promoter to construct new projects on the land owner’s property. According to this agreement, the promoter carries out legal construction work. Further, the owner provides the land. Additionally, under this agreement, an owner is paid back in cash or shares in the property.
What TDS Rate is Applicable under Section 194IC?
Below are the rates of tax deduction under Section 194IC of the Income Tax Act:
- 10% if the rent amount is over Rs. 50,000. Further, the landlord’s PAN details also need to be provided
- 20% if the landlord’s PAN details are not provided
- 2% for the use of machinery and equipment
The payment mode under Section 194IC is a challan-cum-statement, Form 26 QC. In addition, the tenant should provide Form 16C to prove that tenant has deposited tax. Moreover, Form 16C is a TDS certificate. However, a TAN (Tax deduction account number) is not required to make payments.
What is the Payment Mode under Section 194IC of Income Tax?
The payment mode under Section 194IC is a challan-cum-statement, Form 26 QC. In addition, the tenant should provide Form 16C to prove that tenant has deposited tax. Moreover, Form 16C is a TDS certificate. However, a TAN (Tax deduction account number) is not required to make payments.
Also Read: A Step-By-Step Guide To Make TDS Payment Online
When to Deduct Taxes under Section 194IC?
Tenants, or the real estate builder, need to deduct and pay taxes to the Government once during a financial year.
What is the Time of Tax Deduction under Section 194IC?
According to provisions under Section 194 IC of Income Tax Act 1961, one must deduct taxes while paying the rent to the payee. Besides, the individual needs to pay via cash, cheque, draft or other payment modes. Moreover, the TDS rates of deduction are:
- 1.5% TDS on rent payment of plant, machinery and equipment
- 7.5% TDS on rent payment of land, buildings, furniture and fittings
- 3.75% TDS on rent payment if the amount exceeds Rs. 50,000 per month
Further, the individual/HUF is not liable to tax audit.
What is the Time Limit for Depositing under Section194IC?
If the Government or somebody on its behalf makes the payment, then the time limit is the same day. Moreover, one does need to use any challan form. However, if the payment is not made on behalf of the Government, the TDS is to be deposited within 7 days past the month-end, where a deduction takes place. Further, if this amount payment is made in March, the TDS must be deposited prior to April 30.
What are the Penalties for Non-Payment of Taxes under Section 194IC?
Individuals will have to pay penalties under the following circumstances:
- The income tax department can deduct an amount that is equal to the tax deducted if there is an instance of non-deduction of charges.
- If a tax deposit to the Government is delayed, it will charge a penal interest of 1% if the deduction of taxes gets delayed. However, Government will charge 1.5% if the depositing tax is delayed.
- In a situation where the individual fails to submit Form 26QC in a span of 30 days from month end, taxes were paid. Moreover, each day will be levied with a late fee of Rs. 200.
When is Tax Non-Deductible under Section 194IC?
Circumstances, when taxes are non-deductible under Section 194IC, are:
- If the amount paid/payable does not exceed Rs. 2,40,000 in a given financial year.
- In case an individual or HUF is the tenant and is not carrying out business.
- A person paying to Government does not require deducting TDS. The payments made to local and statutory authorities are exempted from tax, thus, tax cannot be deducted.
- In the case of film distribution, the lease is not in the form of a rental. Hence, it does not fall under this section.
Also Read: Section 194IB Of The Income Tax Act: Purpose, Rules And TDS Deposition Guide
Final Word
Section 194IC is an essential provision of the Income Tax Act. It deals with tax deduction at source for agreements between an asset owner and the builder. Moreover, any form of transaction between the builder and owner is taxed under this Income Tax law section.
FAQs on Section 194IC
Ans: Individuals or HUFs must deduct TDS when the rent is credited or during payment via cash, cheque, draft or any other payment mode.
Ans: The non-payment or non-deduction of TDS made to residents will lead to disallowance. Further, this disallowance is only applicable in specific payment categories like interest, brokerage, rent, commission, technical or professional services, etc.
Ans: Form 26QC is a challan-cum-statement of TDS deduction under Section 194IC of the Income Tax Act.
Ans: According to the Income Tax department’s circular number 715, any individual or HUF’s payment towards hiring hotel rooms will be considered rent. However, one must hire these rooms regularly, like one month straight or more.
Ans: TDS rate for individual/HUF and others is 10% for all payments specified under an agreement that was applicable during FY 2017-18 onwards.
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