Collect TDS on Rent

Tax Deducted at Source or TDS is tax that is collected from the source of the income. By taxing the income directly (partially or wholly) at the time of generation, the government is able to minimise tax evasion. This is applicable to a whole range of incomes, from salary and commissions received to interest and rent received. Under the Income Tax Act, there are different rates of TDS imposed for different recipients and different kinds of payments. Also, certain payments are subject to TDS for Non-Resident Indians (NRIs) but not for resident Indians.

For TDS, it is the person who makes the payment who is responsible for deducting and depositing the tax into the government’s account. The person who makes the payment is called the ‘deductor’ while the person who receives the payment is called the ‘deductee’.

TDS on rent

Under Section 194-IB, which was introduced under the Finance Act 2017, TDS has to be deducted when the rent payment exceeds Rs.50,000 per month or part of the month. This is also applicable to salaried individuals whose rent exceeds Rs.50,000 per month and who claim House Rent Allowance (HRA).

Guidelines for individuals (as tenants) for TDS on rent

  1. Individuals who pay a rent that exceeds Rs.50,000 monthly are liable for a 5% TDS deduction.
  2. The tenant is responsible for collecting the landlord’s Permanent Account Number (PAN) and also verifying it with the original PAN card.
  3. The TDS certificate is to be downloaded and furnished in Form 16C from the website of the TDS Reconciliation Analysis and Correction Enabling System (TRACES). This is to be issued to the landlord or the payee within 15 days from the due date of the challan cum Form 26QC statement being furnished.
  4. If the landlord or payee is a non-resident Indian, the TDS deduction is liable to be taken under Section 195 of the Income Tax Act, 1961.
  5. The entire financial year’s TDS is to be deducted in the year’s last month. Deduction every month is optional.
  6. The Tax Deduction and Collection Account Number (TAN) is not required. The PAN number is to be used instead.

Guidelines for individuals (as landlords) for TDS on rent

  1. You will have to provide your PAN to your tenant for the purpose of furnishing the required information to the Income Tax Department about the TDS.
  2. In the Form 26AS Annual Tax Statement, make sure to verify the deposit of taxes deducted by your tenant.
  3. Form 16C has to be obtained from your tenant. It is important to ensure that the form is downloaded from the website of TRACES itself.

TDS on different categories of rent

The percentage of TDS is different on different categories of rent. These are the relevant percentages for different categories:

  • Rent of land, building, or furniture (for individuals and Hindu Undivided Family): 5%
  • Equipment, machinery, or plant: 2%
  • Rent of land, building, or furniture (for those who require tax audit): 10%

Additional points to be noted

From the date on which the TDS is supposed to be deducted to the date on which it is actually deducted, interest is levied at the rate of 1% on the TDS amount monthly or part of the month. If the tax deducted is not deposited with the government within 30 days, then the interest is increased to 1.5% on the TDS. Also, a penalty of Rs.200 can be levied per day which can easily go up to the maximum amount that is equal to the tax which has to be deposited for failure to file the TDS returns on time. Late filing of income tax returns can attract a penalty of Rs.5,000 as well. This comes under Section 234A of the Income Tax Act.

Revision of ITR

If any mistakes have been made in filing of income tax returns, it can be revised within a certain time period. This is before one year expires from the end of the assessment year or before the assessment is complete, whichever is earlier. This comes under Section 139(5) of the Income Tax Act.

What happens if you change jobs during the financial year?

If you have changed your job during the financial year, then your new employer has to be furnished with the details of your income and the tax deducted. This has to be done using Form 12B. It is only when the details of the TDS cut from the previous salary is known will your current employer be able to deduct from your present salary the correct TDS.

Investments that save tax

There are several tax-saving instruments that help you with tax benefits. A maximum tax savings of Rs.1.5 lakh is possible under Section 80C. With this, you can save up to Rs.45,000, which is again dependent on which income category you fall into. It is important to keep your Public Provident Fund (PPF) and National Pension System (NPS) active with even a minimum contribution. Before the due date of filing of income tax returns, it is also important to furnish the details of expenses and tax-saving instruments to your employer. Failure to do so may result in extra TDS being deducted because there is no proof of investments.

Keeping all these points in mind will help you pay the exact amount of tax that is required and also helps you save tax.

In Additional, To know more about TDS Calculation, Union Budget 2019-20 changes on TDS, TDS Return etc feel free to visit here (Detailed Info about TDS).