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.
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.
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.
Below are the rates of tax deduction under Section 194IC of the Income Tax Act:
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.
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
Tenants, or the real estate builder, need to deduct and pay taxes to the Government once during a financial year.
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:
Further, the individual/HUF is not liable to tax audit.
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.
Individuals will have to pay penalties under the following circumstances:
Circumstances, when taxes are non-deductible under Section 194IC, are:
Also Read: Section 194IB Of The Income Tax Act: Purpose, Rules And TDS Deposition Guide
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.
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.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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