As rents continue to rise in major metro cities, many tenants are paying more than Rs 50,000 per month or even more for their accommodation. Such high-value rental payments can also attract tax obligations.
As per the laws, tenants crossing this threshold are required to deduct Tax Deducted at Source (TDS), deposit it with the government and complete required compliance procedures. A taxpayer’s failure to do so can result in interest charges, late fees and penalties.
When Does TDS Apply On Rent?
According to the rules of the tax department: “Section 194-IB provides that every Individual and HUF, whose turnover or gross receipt from business or profession doesn’t exceed Rs 1 crore in case of business and Rs 50 lakhs in case of a profession in the immediately preceding financial year, shall deduct tax from the payment of rent for use of any land or building or both. The tax shall be deducted at the rate of 2% if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.”
This means that if an individual or a Hindu Undivided Family (HUF) pays more than Rs 50,000 per month as rent, they must deduct 2% TDS from the rent before paying the landlord.
“The tax shall be deducted under this provision even if the individual is not engaged in any business or profession and he is just earning salary or any other income. Further, there is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN,” the rules say.
How Much TDS Needs To Be Paid?
As per the rules, if the monthly rent exceeds Rs 50,000, the tenant must deduct TDS at 2% before making the payment to the landlord. No surcharge or health and education cess is added to this rate.
If the landlord does not provide a PAN, the TDS rate increases sharply to 20% under Section 206AA. Even in such cases, the tax deducted cannot exceed the rent payable for the last month of the financial year or the final month of the tenancy.
How To File?
After deducting TDS on rent, the tenant must deposit the tax with the central government through Form 26QC within 30 days from the end of the month in which the deduction was made. The challan-cum-statement must be filed electronically. The tenant must also issue a TDS certificate, Form 16C, to the landlord within 15 days of filing the TDS statement.
Penalty For Missing TDS
If TDS is not deducted, interest of 1% per month applies until the tax is deducted. If TDS is deducted but not deposited with the government, interest of 1.5% per month is charged from the deduction date until payment is made.
If a tenant fails to file the TDS statement, it can attract a late fee of Rs 200 per day under Section 234E. In addition, penalties ranging from Rs 10,000 to Rs 1 lakh may also be imposed under Section 271H.
A separate penalty of Rs 500 per day also applies if the tenant fails to issue the TDS certificate (Form 16C) to the landlord within the prescribed time.
ALSO READ: Job Switch And ITR Filing: Top Tax Issues That Frequently Catch Employees Off Guard
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