Form 16C and Challan 26QC: Understanding TDS on Rent Made Simple

The Income Tax Act has several sections that deal with Tax Deducted at Source (TDS). Sections 192 to 194 specifically talk about TDS deductions. These sections state that the person making a payment (payer) must deduct TDS before paying the recipient (payee). The percentage of TDS deducted varies depending on the type of payment being made.

When TDS is deducted, the payer must provide the payee with a document that details the deduction. For example, Form 16 is issued to employees showing the TDS deducted from their salaries.

Similarly, Form 16C is a TDS Certificate issued by a tenant to a landlord for rent payments, as per Section 194IB of the Income Tax Act.

What is Form 16C?

Section 194IB of the Income Tax Act states that individuals or Hindu Undivided Families (HUFs) who pay a monthly rent exceeding ₹50,000 must deduct 5% TDS before paying rent. This rule came into effect on June 1, 2017.

Form 16C is a certificate issued to landlords, showing the amount of TDS deducted from rent by the tenant.

Understanding Section 194IB

Section 194IB was introduced in the Union Budget of 2017 and became effective on June 1, 2017. Before this section was introduced:

• If a person or HUF was subject to a tax audit under Section 44AB, they had to deduct 10% TDS on rent.

• If the person or HUF was not under a tax audit, no TDS deduction was required on rent.

With the introduction of Section 194IB, it became mandatory for individuals and HUFs to deduct TDS if the rent is above ₹50,000 per month, regardless of tax audit applicability.

TDS Deduction Under Section 194IB

Here’s what you need to know:

• TDS applies if rent exceeds ₹50,000 per month.

• TDS rate: 5% of the rent amount.

• TDS is deducted only once in a financial year.

• It should be deducted at the earlier of the following events:

  • When rent is credited to the landlord’s account in the last month of the financial year.

  • When paying rent for the last month of tenancy, if the house is vacated before the financial year ends.

  • At the time of actual rent payment.

Example:

A tenant rents a 3BHK penthouse at ₹75,000 per month. Since the rent is above ₹50,000, 5% TDS must be deducted before paying rent to the landlord.

Total rent for the year: ₹9,00,000 TDS deducted: ₹9,00,000 × 5% = ₹45,000

This TDS must be deducted before paying the landlord in the last month of the financial year or tenancy.

When is TDS Deducted?

TDS is deducted once per financial year in any of the following cases:

1. When the rent is credited to the landlord’s account in the last month of the financial year.

2. When the last month’s rent is paid before vacating the house.

3. At the time of actual rent payment.

How to Pay TDS to the Government?

Once TDS is deducted, it must be deposited with the Government within 30 days from the end of the month in which it was deducted.

For example: If TDS is deducted on April 15, 2019, it must be deposited by May 30, 2019.

To deposit TDS, Form 26QC must be filled and submitted. This is a challan-cum-statement showing the details of TDS deducted on rent. Payment can be made electronically via RBI, SBI, or any authorized bank.

Due Date for Filing Form 16C

After depositing the TDS, the tenant must generate Form 16C and provide it to the landlord within 15 days of filing Form 26QC.

If Form 16C is not issued within the deadline, a penalty of ₹100 per day will be imposed for the delay.

What Details Are Included in Form 16C?

Form 16C includes:

• Certificate number

• Date of last update

• Tenant’s (deductor’s) name and address

• Landlord’s (deductee’s) name and address

• PAN of both tenant and landlord

• Financial year of TDS deduction

• TDS transaction summary (including unique acknowledgment number, rent amount, payment date, and TDS amount deducted)

• TDS deposit details (amount deposited, deposit date, bank branch code, and challan number)

• Verification section, signed by the tenant to confirm that TDS was deducted as per law.

How to Download Form 16C?

You can download Form 16C from the official TRACES website by following these steps:

1. Visit the TRACES e-portal.

2. Log in using your User ID and Password.

3. On the landing page, go to the ‘Downloads’ tab.

4. Select ‘Form Type’ and ‘Assessment Year’.

5. Enter the landlord’s PAN and acknowledgment number.

6. Click ‘Proceed’ to see a list of available challans.

7. Select Form 16C and download it.

8. Fill in the required details and submit the request.

9. Once processed, the form will be available for download.

Why is Form 16C Important?

If your rent exceeds ₹50,000 per month, you must deduct 5% TDS and issue Form 16C to your landlord. Failure to comply with this rule can lead to penalties under the Income Tax Act.

Frequently Asked Questions (FAQs)

Q1: If I pay a yearly rent of ₹3.6 lakhs, do I need to deduct TDS?

• No, since monthly rent is ₹30,000, which is below ₹50,000, TDS is not required.

Q2: What happens if my landlord doesn’t provide a PAN card?

• If the landlord provides their PAN, TDS is 5%.

• If the landlord doesn’t provide PAN, TDS increases to 20%, but it cannot exceed the last month’s rent.

Q3: How can I get Form 16C?

• Tenants can download Form 16C from the TRACES website after filing Form 26QC and depositing TDS.

Q4: What if I fail to furnish Form 16C to my landlord?

• You will be charged a penalty of ₹100 per day for late submission.

Q5: Is a TAN required to deduct TDS under Section 194IB?

• No, you only need the PAN of the tenant and landlord.

By understanding Section 194IB, Form 16C, and Challan 26QC, you can ensure compliance with tax rules and avoid penalties. If you are paying rent above ₹50,000, always deduct 5% TDS, deposit it on time, and issue Form 16C to your landlord.