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Importance of Rental Agreement

Last Update Date : April 29, 2019
Estimated Read Time: 4 min

Rental Agreement

It’s not our differences that divides us. It’s our inability to recognize, accept and celebrate those differences. Our differences are policies, our agreements are principles. Similarly, when we buy something on rent, an agreement is made to set those principles and follow them.  This guide will answer your questions about Rental Agreements.

Rental Agreement

A legal document of official contract signed between the owner of the property and the tenant who chooses to take that possession of that property for a said period is known as Rental Agreement. It is also known as rental dead/lease dead.

Types of Rental Agreement

There are two types of rental agreements in India.

  1. Lease agreement that lasts at least for 12 months as per the Rent Control laws given by the State Government.
  2. Lease and license agreement of up to 11 months which doesn’t fall under the Rent Control Laws.

Contents of a Rental Agreement

The following are the terms and conditions of a rental agreement.

  • Name, address, Father’s/Husband’s name of both the tenant and the landlord.
  • Value of the rent and the tenure. Tenure is usually 11 months or less than that. In case the tenure is more than a year, it is mandatory to get the documents registered by the landlord.
  • The security deposit amount must be handed over to landlord by the tenant.
  • If the tenant fails to pay the rent before the predetermined period, the penal charges that he/she would be liable to pay should also be defined in the agreement.
  • There may be facilities like parking or usage of society facilities. All such facilities should be mentioned in the agreement.
  • There might be maintenance charges or extra charges that tenant has to pay monthly. It’s better to either mention in the agreement or clear out things with the person who is supposed to bear them.
  • Rent revision terms.
  • Notice period, lease terms and extension of lease.
  • In case the flat is furnished, a list of fittings and fixtures should be made and the penalty for damage decided in advance. The landlord should also check plumbing, electrical, sanitary fittings, etc, and mention their condition in the agreement. Details of the condition of walls, ceilings, and rooftop should also be mentioned so that there is no dispute over damage to the house if there is any.
  • The purpose of the lease should be clearly written in the agreement, whether it is given for residential purpose or for commercial purpose.

Sample Rental Agreement

rental agreement sample

Notarized Rental Agreement

Notarization is different from registration of a rental agreement. Both notarization and registration must be done. Notarization generally refers to verification and giving a seal of authenticity to the document. Notarization is done by a Notary who is appointed under the Notaries Act. Notarization is not mandatory if it is printed on the Stamp paper and signed by both the parties and two witnesses.  Registration is different from notarization. Registration of documents must be done with a local sub-registered officer.

Stamp Paper

As per the Law when one does transactions such as buying and selling real estate, business agreements or leasing property, one needs to make payment of Stamp Duty to Central/State Govt. From state to state, the duty to be paid differs, and if the state does not have its own Stamp Act, it will be overseen by the Indian Stamp Act. Stamp papers are proof that the required Stamp Duty has been paid to the Govt., much like receipts.

The stamp paper value of rental agreement is not decided on the amount fixed rent between both the parties, but is decided as per the stamp duty fixed by the state government. It is better to verify with your employer if there is some limit on the stamp paper.

For using e-Stamp paper for rental agreements, first verify whether the state facilitates this, by going to the website of SHCIL (Stock Holding Council of India Limited) and checking if the state is included in the list. The following states allow e-Stamping: Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand and Uttar Pradesh.

Security Deposits

At the time of making the contract, a security deposit, of a previously determined amount, is given to the landlord from the tenant. This deposit is repayable at the time of cancellation of contract. Generally, deposit amount is calculated anywhere from 2 or 3 months’ rent up to 10 months of rent.

At the end of the agreement, the landlord can use a part of the security deposit towards any damages caused to the furniture, appliances, electrical, or the property itself, by the tenant. After deducting the security deposit towards damages, the landlord must return the remainder of deposit to the tenant.

How H&R Block India Can Help You?

Tenants can use HRA allowance deduction of the Income Tax Act, if provided by the employer, in reducing his/her taxable bracket. To know how to maximize the tax saving options available to you and for better tax planning options, consult your personal tax expert at H&R Block India.

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CA Madhuri Marne
Madhuri is a tax expert at H&R Block (India) with over a decade of professional experience. Having co-authored a book on economics for the ICAI exam, she now enjoys writing about tax-related topics in a simple and easy manner. Outside of work, Madhuri is passionate about teaching students who are appearing for professional exams.

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