Mismatch Between TDS Deducted and TDS Credit on Rental Income: A Case Study Under Section 194IB

Introduction

Recently, numerous landlords and tenants have encountered inconsistencies regarding TDS (Tax Deducted at Source) on rent as stipulated by Section 194IB of the Income Tax Act. This blog elaborates on a particular real-life scenario where the landlord anticipated a greater TDS credit than what was actually reported in Form 26AS. This discrepancy not only created confusion but also led to additional tax obligations, interest charges, and compliance issues.

Let's delve into the specifics of the situation to identify where errors occurred, what could have been improved, and how to rectify the problem.

Background of the Case

Property Type: Residential House Property

Monthly Rent: Ôé╣2,00,000

Duration: 12 months (April 2024 to March 2025)

Total Rent for Fiscal Year: Ôé╣24,00,000

The tenant deducted TDS at 5% on the rent paid from April to September 2024 and switched to a TDS rate of 2% for the remaining months, stemming from a misunderstanding between Section 194I and Section 194IB.

The landlord expected the TDS credit to be calculated as follows:

Ôé╣2,00,000 × 6 months × 5% = Ôé╣60,000
Ôé╣2,00,000 × 6 months × 2% = Ôé╣24,000
Total Anticipated TDS Credit = Ôé╣84,000

However, when the tenant submitted Form 26QC, they reported only the 2% TDS on the total rent amount of Ôé╣24,00,000, computed as:

Ôé╣24,00,000 × 2% = Ôé╣48,000

Issue: TDS Discrepancy & Tax Credit Deficiency

After the submission of Form 26QC, only Ôé╣48,000 appeared as TDS in the landlord's Form 26AS. Consequently:

  • The landlord received a lower TDS credit than anticipated.
  • The advance tax paid by the landlord was insufficient by Ôé╣36,000.
  • The tenant deducted Ôé╣60,000, while only Ôé╣48,000 was actually remitted to the government.

This situation resulted in tax liability and interest obligations for the landlord while placing the tenant in a refund scenario.

Relevant Legal Provisions

Section 194IB – TDS on Rent by Individual/HUF (Non-Audited)

  • Applicable if the monthly rent exceeds Ôé╣50,000.
  • The tenant (an individual or HUF not undergoing audit) must deduct TDS at a rate of 2% of the annual rent.
  • TDS should be deposited annually via Form 26QC.
  • There is no need for a TAN (Tax Deduction Account Number).
  • TDS must be deducted in the last month of tenancy or the financial year, whichever occurs first.
Mistakes Identified

Error by Tenant:

  • Deducted TDS at 5% for the initial six months, mistakenly believing Section 194I applied.
  • Filed a single Form 26QC at the end of the financial year with a 2% rate on total rent, disregarding prior deductions.
  • Only Ôé╣48,000 was deposited to the government (i.e., 2% of Ôé╣24,00,000).

Error by Landlord:

  • Estimated advance tax liability assuming Ôé╣84,000 as TDS credit without verifying the actual TDS deposited and reported by the tenant.
  • Ended up paying less advance tax than necessary.

Error by Tax Professional:

  • Neglected to confirm the actual TDS indicated in Form 26AS prior to preparing advance tax estimations.
Implications of the Discrepancy

For Landlord:

  • Receives merely Ôé╣48,000 as TDS credit rather than Ôé╣84,000.
  • Must cover the deficit of Ôé╣36,000 as tax along with:
    • Interest under section 234B (for underpayment of advance tax)
    • Interest under section 234C (for deferring advance tax installments)

For Tenant:

  • Deducted more TDS than what was deposited (Ôé╣60,000 deducted, Ôé╣48,000 deposited).
  • Will need to claim a refund for the excess Ôé╣12,000, or may have to revise the TDS filing if feasible.
Resolution & Corrective Actions

Steps for Landlord:

  • Reassess taxable income and pay any outstanding tax.
  • Include interest under sections 234B and 234C while calculating the liability.
  • File the return based on the actual TDS shown in Form 26AS only.
  • Seek expert assistance to prevent future discrepancies.

Steps for Tenant:

  • File a refund claim for the excess TDS deducted.
  • Ensure that future deductions conform strictly to Section 194IB.
  • If permitted, amend Form 26QC and rectify the TDS amount.
Responsibilities of Tax Professionals:
  • Always review Form 26AS prior to estimating advance tax or submitting returns.
  • Instruct clients (including both tenants and landlords) on the correct TDS regulations.
  • Assist tenants in submitting refund applications or revising TDS returns (if allowed).
Important Insights from This Case
Stakeholder Key Insight
Landlord Always verify TDS — check your Form 26AS before filing your return.
Tenant Apply TDS based on the accurate section — 194IB at 2%, not 194I at 5%.
Tax Pro Make sure clients grasp the law and adhere to it properly before assessing taxes.
Conclusion

Misunderstanding Section 194IB and incorrect reporting in Form 26QC can lead to significant problems such as tax discrepancies, unnecessary interest liabilities, and compliance challenges. All parties involved — landlords, tenants, and tax advisors — must remain alert and compliant to prevent such issues.

Accurate TDS deduction, prompt filing, and effective communication can facilitate seamless tax compliance and prevent costly mistakes.

Looking for assistance with TDS, rent compliance, or filing your ITR?

Our specialists at myITRonline.com are here to assist you with:

  • Submitting Form 26QC
  • Requesting TDS refunds
  • Modifying advance tax estimates
  • Ensuring complete compliance for TDS & ITR filing

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