TDS credit to landlord u/s 194I(B) in case 10% is deducted as opposed to 2% as per act.

[ROHIT GOEL]

Dear Professionals

TDS as per section 194I(B) is 2%, however in case 10% is deducted and deposited by filing Form 26QC then will entire benefit of 10% will be given to landlord in his Form 26AS or not?. There are reports that only correct rate (2%) benefit will flow to the landlord, despite tenant deducting and depositing 10% TDS. If that is the case, why is there no field check for TDS rate in Form 26QC and why is it allowing to file the form with 10% TDS rate.

[YAGAY andSUN]

Under Section 194-IB of the Income-tax Act, 1961, TDS on rent by specified individuals/HUFs is to be deducted at the prescribed rate (currently 2%) and reported through Form 26QC. If the tenant erroneously deducts and deposits tax at a higher rate (e.g., 10%), the amount so deposited is still treated as tax deducted at source on behalf of the deductee (landlord) under Section 199 read with Rule 37BA. Consequently, credit should flow to the landlord's Form 26AS/AIS to the extent of the tax actually deposited, subject to proper PAN reporting and successful processing of the statement. The Act does not restrict credit to the "correct rate"; rather, it links credit to actual tax deposited and matched with the deductee's PAN.

However, administrative mismatches may arise if the filing is inconsistent with the statutory rate or validation rules, in which case rectification/correction of Form 26QC by the tenant may be required. The absence of a strict rate validation field in Form 26QC is procedural in nature and does not override the substantive provisions of Section 199; excess deduction, if any, is ordinarily claimable as credit/refund by the landlord in the return of income.

For return purposes, such TDS is not a separate "category of income" but a tax credit linked to rental income chargeable under the head "Income from House Property".

AI Summary

TDS credit on rent follows tax actually deposited, even where Form 26QC shows an incorrect higher deduction rate. Under Section 194-IB, rent paid by specified individuals and HUFs is subject to TDS at the prescribed rate and reported through Form 26QC. Where the tenant deducts and deposits tax at a higher rate than required, the amount deposited is still treated as TDS on behalf of the landlord, and credit is linked to the tax actually deposited and matched with the landlord's PAN for reflection in Form 26AS/AIS, subject to successful processing.