What is the TDS provision for rent paid by individuals above Rs 50,000?

Many people are unaware of TDS provisions while paying rent on the property and how to comply with the same. Let us understand the income tax provisions of rent in detail. With effect from 1st June 2017, the individual and HUF should deduct TDS at five per cent while paying the rent exceeding Rs 50,000 to the resident landlords. 

Applicable to whom?

It applies to individuals and HUF:  

  • Who is not liable to get their books of accounts audited under the Income Tax Act 

As per the income tax law, individuals and HUF having businesses or professions with gross turnover/receipts exceeding Rs 1 crore or Rs 50 lakh respectively, are required to get their accounts audited.

  • Who shall get their accounts audited for reporting of profit lower than that specified in the presumptive taxation scheme

In simple words, the provision covers only individuals and HUF who are required to get their accounts audited due to gross turnover/receipts higher than specified limits. 

For instance, it covers salaried people and individuals who do not have any income. This provision does not apply to companies, partnership firms, AOP, and BOI.

When to deduct the tax?

The tenant should deduct tax within either of the dates below:

  • When paying rent for March or the last month of tenancy (if the tenant vacates the property during the year), as the case may be.
  • At the time of credit of rent to the landlord’s account for March or the last month of tenancy (if the tenant vacates the property during the year), as the case may be.

Hence, TDS should be deducted only once a year and not monthly.

What is section 194-IB?

As per the income tax law, the individual and HUF, as mentioned above, shall deduct tax at source at five per cent if paying rent to the landlord that exceeds Rs 50,000 per month.

Furnish transaction details and deposit TDS to the income tax department

The tenant has to furnish the transaction details in the challan-cum-statement, i.e. Form 26QC, filled online. After providing the transaction details, the tax deducted should be deposited online or in any authorised bank branch. 

The tenant should deposit tax within 30 days from the end of the month of tax deduction.

It is not required to obtain a TAN number to deduct and deposit the tax to the government.

Periodicity of furnishing Form 26QC

The tenant should furnish the Form 26QC as below:

  • If the rental agreement period contains more than one financial year (FY) and rent has been paid during the year: At the end of the FY or in the month of termination of agreement or vacation of premises.
  • If the rental agreement period falls in the same FY: In the month of termination of agreement or vacation of premises.

For example, tenant Mr C has entered into a tenancy agreement with landlord Mr K for 11 months from 1st September 2020 to 31st July 2021 at the rent of Rs. 70,000.

In this case, Mr C should file Form 26QC twice, i.e., at the end of the FY 2020-21 (on 31st March 2021) and secondly at the end of the tenancy period (on 31st July 2021). 

However, in the above case, if the tenancy agreement was for the period 1st September 2020 to 31st January 2021, then Mr C should file Form 26QC at the end of the tenancy period only (on 31st January 2021).

Number of Form 26QC if different combination of tenant-landlord 

Every tenant is required to fill the Form 26QC, i.e. Form 26QC is required to be submitted for a unique tenant-landlord combination for their respective shares. 

For example: If there are joint tenants for the same property, each tenant should file Form 26QC. Similarly, if there are two landlords and one tenant, the tenant should file two Form 26QC for respective shares of the landlords.

TDS certificate- Form 16C 

The tenant should give the TDS certificate in Form 16C to the landlord for a tax deduction on rent. The deductor (tenant) can download form 16C from the TRACES website. The tenant should give Form 16C within 15 days of submission of Form 26QC. 

Points to remember by the landlord

  • The landlord can avail of the tax credit on tax deducted on rent by the tenant.
  • He can also verify the TDS from Form 26AS.
  • The landlord should furnish PAN to the tenant to avoid tax deduction at higher rates, i.e. 20 per cent.

Hence, the tenant paying a monthly rent of Rs 50,000 and above should responsibly deduct TDS and avoid non-compliance with income tax provisions. Failure to deduct and deposit tax and not furnishing Form 26QC will attract interest and penalty per income tax law.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in

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