Nature of Payements where TDS is required to be deducted but no need of TAN (Section 194 IA & IB)

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What is Tax Deduction & Collection Account Number (TAN) ?

It is a unique 10 digit alpha numeric number allotted by the Income Tax Department (ITD) of India. TAN number to be obtained by all persons who are responsible for deducting or collecting the tax. It is compulsory to quote TAN in TDS / TCS return (including any e-TDS / TCS return), any TDS / TCS payment challan and TDS/TCS certificates.

Legal Requirements

The provisions of section 203A of the Income-tax Act require all persons who deduct or collect tax at source to apply for the allotment of a TAN. This section also makes it mandatory for TAN to be quoted in all TDS/TCS returns, all TDS/TCS payment challans and all TDS/TCS certificates to be issued. Failure to apply for TAN or comply with any of the other provisions of the section attracts a penalty of Rs. 10,000.

However there are two sections where the payer is not required to have TAN for deduction and collection of TDS and depositing the TDS amount with the central government.

 

Sections where it is not mandatory to have TAN :

Section - 194 IA : This Section requires that any person being the payer pays to any resident person a consideration of Rs 50 Lakhs or more for for the purchase of immovable property other than rural agriculture land is required to deduct TDS @ 1%. Here the actual consideration is considered for the purpose of tds and not the SDV value. The Sum so deducted shall be deposited with the Central Government within 30 from the end of the month in which deduction is made. The person responsible for deduction under this section shall also furnish to the DIGIT (Systems) a challan cum statement in Form 26QB. The deductor shall furnish TDS Certificate in Form 16B to the Payee within 15 Days from the due date of furnishing Challan Cum Statement in form 26QB.

For Example Mr. A purchased a House Property For Rs 49,00,000 from Mr. B Stamp Duty Value of which    is Rs 51,00,000 then while making Payment Mr. A is not required to deduct TDS of Mr. B.

Suppose if the Consideration is Rs 55,00,000 then Mr. A will deduct TDS @    1% i.e; Rs 55,000 and make the balance payment (54,45,000) to Mr. B.

Section – 194 IB :  This Section applies to payer being an Individual & HUF (other than those who are covered U/S 194 I) and payee being any resident person. TDS is to be deducted if Rent of the immovable property (Land or Building or both) is more than Rs 50,000. The rate of TDS is 5%. Deduction of Tax is to be made from the Rent of the last month of the Previous Year or from the last month of tenancy whichever is earlier.

A special point is also there in this section that, TDS cannot be more than the rent of the last month of Previous Year. This situation arises when Section 206AA is applicable (When the Payee does not furnish his PAN to the deductor then TDS is deducted at the rate which is higher of :

A)                    Rate as per respective section.                      OR         

B)            20%

As the rate of TDS under this section is 5% and if PAN is note provided by the payee then tds will be deducted @ 20%. 

For Example : Mr. X pay rent to Mr. Y @ 60,000 per month and holds the immovable property for the whole Financial Year then Total Rent will be 7,20,000. So TDS will be deducted by Mr. X @ 5% from the rent of month of March (720000*5%) Rs. 36000 and pay the balance Rs 24000 to Mr. Y.

But Suppose  Mr. Y does not provide his PAN so Mt. X will deduct tds @ 20%. But TDS amount in this case will be 1,44,000 but applying section 194 IB this TDS amount will be restricted to Rs. 60,000 only.

For more clarification feel free to contact:   8103427252

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