Rent Payers, Time to Deposit TDS on Rent for FY2020
“Any person, being an individual or a Hindu undivided family, responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent of such income as income-tax thereon.” What does this mean? Let’s see.
This measure by CBDT is targeted at salaried individuals who claim false House Rent Allowance (HRA) through fake rent payments and 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.
Step 1: Does this apply to you?
If you are an Individual or a HUF, and you are paying rent of Rs.50000 per month (or part of a month) for use of any land or building or both; you are required to deduct and deposit TDS at a rate of 5%.
Step 2: When to deduct?
TDS shall be deducted in March every year and/or in the last month of the tenancy if property is vacated during the year. That means if there is change(s) in property during the year then you might have to deduct and deposit TDS more than once.
Step 3: How much to deduct?
TDS on rent is deducted at 5% on the total rental amount for the tenure under financial year. Thus, rent payable in the month of deduction would be rent per month deducted by the TDS on total rent.
|No. of Landlords in a year||One||Two|
|Rent Duration||12 Months||9 Months||3 Months|
|Rent paid p.m.||55,000||55,000||60,000|
|Total Rent to Landlord||660,000||495,000||180,000|
|TDS @ 5%||33,000||24,750||9,000|
|Month of Deduction||March||December||March|
|Rent payable in the month of Deduction||22,000||30,250||51,000|
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.
Step 4: Where to 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.
Step 5: Generate TDS Certificate
Upon filing Form 26QC, the tenant will issue TDS certificate in Form 16C to the landlord. Form 16C can be generated by registering with TRACES as a taxpayer.
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.