Each one of us desires to own a house but for most of us, it is not financially viable, especially in the initial phase of our career. So, we opt to reside in a rented house. The rent you pay for such a house is a source of income for your landlord. Your landlord might be a tax compliant citizen who pays tax on such income but many others hide this income from the government. They force their tenants to pay the rent in cash and do not give receipts. So, the government has added provisions in the Income Tax Act to curb tax evasion by landlords. As per section 194-IB of the Income Tax Act, 1961, if you are paying rental income exceeding Rs 50,000, you are liable to deduct tax on it and deposit it to government’s account. This guide by H&R Block India will help you understand the relevant tax provisions in detail.
As per the Finance Act 2017, “TDS on Rent” under section 194-IB is liable to be deducted by Individuals or HUF (other than those covered under section 44AB of the Act), responsible for paying rent to a resident exceeding Rs 50,000 for a month or part of a month during the previous year. Section 194-IB of the Income Tax Act, 1961 states that for all the transactions with effect from June 1, 2017, tax @5% should be deducted by the tenant of the property at the time of making payment of rent to the landlord.
Points to be noted:
Let’s take an example:
Shan is paying a rent of Rs 62,000 per month. Now as per the changes in budget 2017, he will pay Rs 62,000/month but while making the payment of the rent for March 2018, he is required to deduct TDS @ 5% on the total rent paid for the year F.Y 2017-18. TDS works out to 5 %( Rs 62,000 x10) or Rs 31,000 since the new rule is applicable from 1st June 2018 i.e. 10 months. In the last month, Shan can pay the landlord Rs 62,000-31,000 = Rs 31,000. He has to then deposit Rs 31,000 with the income tax department. He will, therefore, have to furnish the PAN of the landlord.
Let’s understand how we can calculate TDS on rent and how it affects the tax liability of the taxpayer (landlord).
|Particulars||Amount (in Rs)|
|Rent per month||55,000|
|No. of months||12|
|Total rent paid||6,60,000|
|TDS @5% as per 194IB||33,000|
|Particulars||Amount (in Rs)|
|Standard deduction @ 30%||1,98,000|
|House property Income||4,62,000|
|Total Tax liability||10,600|
Note: Total tax liability is calculated assuming no other income and no deductions under chapter VI.
The tenant of the property has to furnish information regarding the transaction, online on the TIN website i.ewww.tin-nsdl.com after successfully providing all the information.
Gone are those days where you had to stand in long queues to get your work done. Now technology has improved everything. E-payments facilities have lowered the burden of taxpayers but in order to avail this the taxpayer is required to have a net-banking account with any of the Authorized Banks or a debit card in case of some banks. Here are the steps to pay tax online using form 26QC.
STEP 1: Firstly
STEP 2: Once you select the form you will be directed to the screen for entering certain information like:
NOTE: PAN of the tenant and landlord must be correctly mentioned in the form.
STEP 3: After entering all the above detail, click on PROCEED button as shown in the image below. The system will check the validity of PAN.
STEP 4: You can now verify the details entered by you as shown in the image below:
STEP 5: Paying tax either offline or online:
Non-compliance with the TDS provisions or failing to file TDS return on time or not deducting the right amount of tax can land you in trouble.
Ans: Yes. Tenant have to mandatorily furnish the PAN of his landlord. Or else in the absence of PAN or failure to provide the same, tax shall be deducted @20%. However, the overall tax in such a scenario shall be restricted to the rent payable for the last month of the financial year or tenancy whichever is earlier.
Ans: The tenant should fill a form 26QC which is a challan-cum statement.
Ans: Tenant needs to issue a TDS/ tax paid certificate i.e. (Form 16C) to the landlord as proof of taxes deducted. It is to be issued within 45 days from the end of the month in which the tax was deducted.
Ans: Form 16C will be available for download from the website of Centralized Processing Cell of TDS i.e. www.tdscpc.gov.in
Ans: Acknowledgment number for the Form 26QC furnished is available in the Form 26AS (Annual Tax Statement) of the Deductor (i.e. Tenant of the property).The same can be viewed from the TRACES website (www.tdscpc.gov.in)
Taxpayer can also click the option ‘View Acknowledgment’ hosted on the TIN website. Taxpayer needs to enter PAN of the Tenant and Landlord, Total Payment and Financial Year (as mentioned at the time of filing the Form 26QC) to retrieve the Acknowledgment Number.
Ans: As per section 195 of the Income Tax Act, any person responsible for making a payment to a non-resident (landlord), any sum (other than salary or interest referred to in section 194LB or section 194LC) taxable under the Income Tax Act shall, at the time of credit or payment (whichever is earlier) of such income, deduct income-tax thereon at the rates in force. The rate applicable in case of rent will be 30% plus surcharge and education cess as may be applicable. It is important to note here that in case of non-resident there is no minimum amount prescribed for applicability of TDS. TDS has to be deducted irrespective of the quantum of the rent paid.
Ans: If you fail to deduct the taxes you will be considered as an assessee in default and all other consequences will be same as mentioned above (penalty for non-compliance). In this case it is advisable to deduct the taxes as due (recover it from the landlord) and pay it to the government with applicable interest.
But a deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident—
Ans: As per section 194IB, any person (individual or a Hindu undivided family) (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent in excess of Rs. 50K for a month or part of a month during the previous year shall be required to deduct the taxes @ 5%. This provision shall equally apply to a non-resident tenant if he has taken on rent a property form a resident landlord and paying a rent exceeding Rs 50K per month.
After deducting and submitting the TDS to the government account, do not forget to file TDS return. Also, remember to claim HRA to save tax on rent paid. Just like HRA, there are various other tax benefits which you can avail while filing your Income tax return. To make optimum utilisation of all tax saving opportunities, you can get your Income tax return filed by experts at H&R Block India.