Applicable rate is 30% for non-resident landlords, 5% for rest
If you live on rent, you could be liable to deduct tax deducted at source (TDS) on the rent you pay to your landlord. That makes it imperative you understand your obligations and fulfil them on time.
Mumbai-based tax and investment expert Balwant Jain says: “According to the income-tax (I-T) law, TDS on rent paid can be categorised into two parts — rent paid by a businessman and rent paid by an individual or Hindu Undivided Family (HUF).”
Are you liable?
Tenants who pay rent above a threshold level are required to deduct TDS and deposit it with the government.
Suvigya Awasthy, associate partner, PSL Advocates & Solicitors, says, “These TDS provisions impose a major obligation on the tenant rather than on the landlord.”
Individuals or HUFs whose books are not required to be audited, and whose rent amount is insignificant, don’t need to deduct TDS.
Aditya Chopra, managing partner, Victoriam Legalis-Advocates & Solicitors, says, “An individual or HUF whose monthly rent is Rs 50,000 or more is required to deduct TDS at the rate of 5 per cent, even if he/it is not liable to tax audit.”
TDS has to be deducted once
“TDS at 5 per cent has to be deducted at the time of credit of rent for the last month of the fiscal year or the last month of tenancy, if the property is being vacated during the year,” says Jain.
Individuals don’t need TAN
Assessees, other than individuals or HUFs, need to have a valid tax deduction account number to deduct and deposit TDS.
Deepak Jain, chief executive, TaxManager.in, a tax e-filing and compliance management portal, says, “Individual or HUF assessees only need a valid permanent account number to deduct and deposit TDS.”
TDS has to be credited to the central government within 30 days from the last day of the month in which it was deducted.
“The person responsible for deducting TDS has to furnish a challan-cum-statement in Form 26QC electronically,” said Naveen Wadhwa, the deputy general manager at Taxmann.
TDS on rent paid to NRI
The rules are slightly different if your landlord is a non-resident. In that case, the TDS is deducted under Section 195 at the rate of 30 per cent.
Gopal Bohra, partner, N.A. Shah Associates, says, “However, if the non-resident falls under a lower tax bracket, he can obtain a lower-rate certificate from the I-T department based on the actual tax rate he is liable to pay on his rental income (after deducting 30 per cent standard deduction). In that case, the tenant must deduct TDS at the rate specified in the certificate.”
Note that there is no threshold exemption limit for TDS on rent in case of a non-resident landlord.
Penalty for not deducting TDS
If TDS is deducted late, a penalty at the rate of 1 per cent simple interest per month is levied till the date when TDS is finally deducted and paid to the government.
“Tenants who pay rent above the threshold limit must be extra cautious about TDS fillings. They should engage a chartered accountant or tax lawyer if they find it difficult to do this themselves,” says Awasthy.
An individual who deducts TDS also needs to issue a TDS certificate. “To safeguard from penalty, issue the TDS certificate on time. TDS certificate in Form 16C must be issued within 15 days from the date of depositing the TDS amount using challan-cum-statement under Form 26QC,” says Chopra.
In this year’s Budget, the finance minister hiked the penalty applicable on delay.