Tax Deducted at Source (TDS) is a measure adopted by the Government of India for collecting taxes at the source of income. It applies to a range of income categories like interests on fixed deposits, commissions, salaries, and rent. This blog post focuses on TDS applied to rent and the modes of payment one can use. Tenants and landlords alike need to understand what details entail TDS on rent to be compliant with the tax laws. So without wasting any more of your internet bandwidth, let's get right into it..
TDS on Rent: What you need to know
According to Section 194-IB of the Income Tax Act, individuals and HUFs liable to pay rent to an Indian resident must deduct TDS from the rental amount. The amount deducted is then remitted to the Government of India. TDS on rent payment is levied for the main purpose of collecting taxes from the rental income, making it a great way to prevent tax evasion and make the tax collection process easier.
Rates of TDS on Rent
The rate of TDS on rent is determined by several factors, including the type of property and the payer's status. Here's a breakdown of the different rates:
Type of Property:
Plant, Machinery, or Equipment: The TDS on a plant and machinery used in manufacturing or industrial activities, is 2% of the payable rent amount.
Building, Land, Fittings, or Furniture: In the case of a building, land, fittings, or furniture, the TDS rate is 10% of the payable rent amount. Residential and commercial properties are included in this category as well as any fixtures or furnishings within the property.
Payer's Status:
Individuals and Hindu Undivided Families (HUFs) Not Liable to Tax Audit: If the rent payer is an individual or HUF and is not required to undergo a tax audit, the TDS rate is 5% or 3.75% of the payable rent. The rate is calculated by considering how creditworthy the owner is and the date of payment. If the owner is creditworthy and the payment is made on or before the due date, the rate is 3.75%. Otherwise, the rate is 5%.
Individuals and HUFs Liable to Tax Audit: If the rent payer is an individual or HUF who is required to undergo a tax audit, the TDS rate is 10% of the payable rent amount. This applies regardless of the creditworthiness of the owner or the date of payment.
Companies and Other Entities: For companies and other entities, the TDS rate on rent is always 10% of the payable rent amount. This applies to all types of properties and regardless of the payer's creditworthiness or the date of payment
Rules for TDS on Rent:
Here’s a breakdown of the rules for TDS on rent as per Section 194-IB. Being aware of these rules will go a long way in your compliance with the tax laws whether you are a landlord or a tenant.
Threshold Limits:
Annual Rent Threshold: TDS on rent is applicable only if the total rent paid during a financial year exceeds Rs. 2,40,000.
Multiple Properties: If a tenant rents several properties from the same landlord or different landlords, the total rent paid for all properties is considered for determining the applicability of TDS. If the combined annual rent exceeds Rs. 2,40,000, TDS on house rent becomes mandatory.
Conditions for Non-Applicability:
Individual or HUF with Monthly Rent Below Rs. 50,000: If the rent payer is an individual or Hindu Undivided Family (HUF) and the monthly rent falls below Rs. 50,000, TDS is not applicable. However, this exemption does not apply to individuals and HUFs who are liable for tax audits.
Rent Paid to Government or Statutory Authority: In general, TDS is not applicable if the rent is paid to a government entity or a statutory authority. Payments made to municipalities, housing boards, or other government agencies are a part of this category.
Exemption Agreement: In certain cases, a tenant and landlord may agree to exempt the rental income from TDS. However, this exemption must be supported by valid documentation and comply with the tax laws.
Responsibilities of Tenants and Landlords
Tenants:
Accurate TDS Deduction: If you are a tenant, you must be cent percent accurate with the TDS amount based on the applicable rate and the rental income you receive.
Timely Remittance: Be certain to remit the TDS amount to the government within the prescribed time limits, which depends on the date of rent payment.
PAN Number Verification: Check your landlord’s PAN number beforehand as incorrect PAN details lead to processing delays and penalties.
Record Keeping: It is a good practice to maintain proper TDS payment records. These may include challans, receipts, and TDS certificates. Such documents may come in need in the future in cases of audits.
Landlords:
PAN Number Provision: As a landlord, you must provide their PAN number to the tenant for TDS deduction.
TDS Verification: Be sure to regularly verify that the tenant is deducting and remitting their TDS correctly. You can review their TDS certificates or check their tax returns for this.
Income Tax Returns: Your ITRs must report the rental income received after TDS deductions in their income tax returns. This includes providing details of the TDS deducted by the tenant and the TDS certificates received.
Payment Modes for TDS on Rent
You can go about paying your TDS on house rent in several ways:
1. There’s Online Payment:
Net Banking: Log in to your bank's net banking portal and select the "TDS on Rent" option. Follow the instructions to make the payment.
Mobile Banking: Use your bank's mobile app to make the TDS payment.
Government Tax Portal: Visit the Income Tax Department's website and use the online payment gateway to make the payment.
2. You can also consider paying offline:
Bank Branch: Visit your bank branch and submit a challan form along with the payment.
NEFT/RTGS: Use NEFT or RTGS to transfer the TDS amount to the government's designated account.
A step-by-step Guide to Paying your TDS on Rent
We have created a step-by-step guide to help you pay your TDS on house rent with ease.
Step 1. Calculate TDS: Determine the TDS amount based on the rental income and applicable rate.
Step 2. Obtain the Landlord's PAN: Get the landlord's Permanent Account Number (PAN) to include in the TDS payment form.
Step 3. Choose a Payment Mode: Select the online or offline method for making the payment.
Step 4. Fill Out the Form: Complete the necessary form (e.g., Form 26QC) with the required details.
Step 5. Make the Payment: Follow the instructions for your chosen payment method to complete the transaction.
Step 6. Obtain Acknowledgement: Keep a record of the transaction and obtain a confirmation or acknowledgment.
The long and short of it…
The best advice we can give you is to pay your TDS on time and stay in the loop regarding any new developments. What you can do is visit the www.incometaxindiaefiling.gov.in website periodically to stay ahead of the curve. Another great way to go about this is to check out the JJ Tax App. The JJ Tax App features an easy portal to help you pay your TDS and also plan your taxes for the future. The chat feature in the app is an added bonus as expert CAs are always there to answer your every query. Install the app for free!