Section 194-IB of ITA, 1961 : Section 194-Ib: Payment Of Rent By Certain Individuals Or Hindu Undivided Family

Explanation using Example

Imagine that Mr. Sharma is a retired individual who owns a second house in Delhi. He rents out this house to Ms. Neha, who works in a multinational company. The monthly rent agreed upon is ₹60,000. According to Section 194-IB of the Income-tax Act, Mr. Sharma, being an individual landlord, is responsible for deducting tax at source (TDS) since the rent exceeds ₹50,000 per month.

Mr. Sharma must deduct 5% of the monthly rent as TDS before handing over the rent to Ms. Neha. So, he will deduct ₹3,000 (which is 5% of ₹60,000) and pay Ms. Neha ₹57,000. He must do this deduction at the time of credit of rent for the last month of the financial year or at the time of payment of rent, whichever is earlier.

If Ms. Neha decides to vacate the property in the middle of the year, Mr. Sharma should deduct TDS on the rent of the last month of her tenancy.

Also, Mr. Sharma does not need to obtain a Tax Deduction and Collection Account Number (TAN) since Section 203A does not apply in this case, making the process simpler for individuals and HUFs not covered under the second proviso to section 194-I.

Lastly, if Ms. Neha does not provide her Permanent Account Number (PAN) to Mr. Sharma, he is required to deduct tax at a higher rate as per section 206AA. However, this deduction will not exceed the rent payable for the last month of the previous year or the last month of tenancy.