Rent payers, time to deposit TDS on Rent

Posted by Namita Gad on 08 Mar, 2018

Rent payers, time to deposit TDS on Rent

Since last year, the Indian Government has taken various measures to curb the generation and flow of black money in the Indian economy. The Government is trying to bring all transactions under their scanner with a special focus on real-estate ones. Before 1st June 2017, deducting tax at source was only done by big businesses. But now in certain circumstances, even salaried individuals, small businesses and HUF’s are required to deduct taxes for rent paid under Income Tax Law.

This measure by CBDT is mainly targeted at salaried individuals who claim false House Rent Allowance (HRA) through fake rent payments & owners of real-estate properties with undisclosed rents. To track such transactions, the Government has widened the scope of deduction of tax at source (TDS) and introduced TDS on rent payment above INR 50k per month. Let us understand the calculation and procedural aspects of this provision.

Deduct TDS
From 1st June 2017, individuals and HUFs paying rent more than INR 50k a month are required to deduct tax. Such deduction would have to be done only once for each landlord in a year; either at the end of the financial year or end of tenancy, whichever is earlier.

TDS on rent is deducted at 5% on the total amount u/s.194IB of the Income Tax Act, 1961. Thus, rent payable in the month of deduction would be rent per month deducted by the TDS on total rent.
For e.g.:

No. of Landlords in a yearOneTwo
Rent Duration12 Months9 Months3 Months
Rent paid p.m.55,00055,00060,000
Total Rent to Landlord660,000495,000180,000
TDS @ 5% u/s.194IB33,00024,7509,000
Month of DeductionMarchDecemberMarch
Rent payable in the month of Deduction22,00030,25051,000

Deposit TDS
The tenant has to file an online Form 26QC by depositing the TDS within 30 days of deduction with the Government on IT Department’s website using the tenant’s and landlord’s PANs. If the landlord’s PAN is not available, then tax must be deducted at 20%, but it would be limited to the amount of rent payable for the last month of the financial year or the last month of the tenancy.

Generate TDS Certificate
Upon filing Form 26QC, the tenant will issue TDS certificate in Form 16C to the landlord. Non-compliance to this process will attract penalty and interest to the tenant. Since this deduction will be reflected on income tax website, landlord will have no choice but to disclose rental income in her IT return and claim TDS. This will prevent landlords from allowing fake rentals to tenants.