The Union Budget 2024 introduced a key revision in the TDS (Tax Deducted at Source) rate on rent payments under Section 194-IB. Effective from October 1, 2024, the TDS rate has been reduced from 5% to 2%. This change has raised questions about the applicable rate for the financial year 2024-25, especially for rent payments made before and after the transition date. Understanding the correct TDS rate is essential to ensure compliance and avoid calculation errors.
As per Section 194-IB, individuals and Hindu Undivided Families (HUFs) who pay rent exceeding ₹50,000 per month must deduct TDS at the time of:
Credit of rent, or
Payment of rent, whichever occurs earlier for:
The last month of the financial year, or
The last month of tenancy (if vacated before year-end).
The applicable TDS rate is determined by the date on which the rent is credited or paid:
Before October 1, 2024: TDS is deducted at 5%.
On or after October 1, 2024: TDS is deducted at 2%.
If a tenant vacates the property in September 2024 and the last rent payment is credited or paid before October 1, 2024, the TDS must be deducted at 5%.
If the tenancy extends until March 2025, the TDS deduction occurs in March. Since this is after October 1, 2024, the applicable TDS rate is 2%.
If the last rent payment occurs before October 1, 2024, TDS should be deducted at 5%.
If the last rent payment occurs on or after October 1, 2024, TDS should be deducted at 2%.
TDS under Section 194-IB is a one-time deduction in the last month of the financial year or tenancy.
There is no need to split TDS across different rates within the same financial year.
The amendment in Section 194-IB simplifies TDS deductions on rent by reducing the rate from 5% to 2% starting October 1, 2024. Taxpayers must be mindful of the timing of their rent payments to apply the correct rate and avoid non-compliance. Proper understanding and adherence to these changes will help in seamless tax planning and compliance for FY 2024-25.
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