TDS Provisions on Rent Paid, Under the Income Tax Laws


TDS is a mechanism that collects tax at the source through which the income of a person is generated and imposed on various incomes, including rent charged.

Tax revenue is the biggest source of the government’s income. There are various kinds of taxes like income tax,TDS Provisions on Rent Paid, Under the Income Tax Laws Articles sales tax, wealth tax, corporate tax, and many more. You may have seen or heard about TDS in your salary slip or while doing any banking process. Did you know there is a relation of TDS with real estate also?

SBP Group collected all the essential points which will help you fully understand this relation.

Tax deduction at source (TDS) is a mechanism that collects tax at the source through which the income of a person is generated. TDS is imposed on various incomes, including rent charged, as a procedure put in place by the income tax authorities to curb instances of tax evasion. Different kinds of taxes attract different TDS rates under the income tax laws.

The current provisions of Section 194I of the Income Tax Act place an obligation on the payer of the rent to deduct tax on any land or building at the rate of 10% of the rent if the total amount of the rent paid or likely to be paid during the year exceeds Rs 2.40 lakhs.

Thus, if the owner of a property has let out more than one property to the same lessee and the annual rent of which is less than Rs 2.40 lakhs for each property annually, but the aggregate rent is likely to exceed Rs 2.40 lakhs for all the properties taken on rent from the same individual, then the lessee must deduct the source tax.

Who’s responsible for deducting TDS from the rent?All taxpayers, including corporations, businesses, trusts or associations of individuals, etc., are subject to these requirements.

Nevertheless, the payer of the rent is a person or a HUF, the rules shall apply if the payer of the rent is engaged in an undertaking or occupation and the accounts have been expected to be audited within the preceding year, as the turnover exceeds the limit specified.

When is the TDS on rent is deducted?The payer of the rent is obliged, even though the payment is made later, to subtract the tax at the time the rent is added to his account books. Similarly, at the time of making advance payment for such a contract, you must subtract the tax, either for the year or even in situations where the rent is paid in advance for more than one year. You need to obtain the tax deduction account number (TAN) for payment of the TDS to the government loan and pay the tax through the specified challan.

Deduction of TDS on rental payments by individuals and HUFsThe government also extended the reach of the tax deductions at source for rent paid in order to get more taxpayers into the tax net. This will include all individuals and HUFs which, as explained above, are not protected under the current provisions. Every person and HUF would have to deduct tax on the rent being paid at the source, at the rate of 5 percent if the amount of rent is more than Rs 50,000 for each month or part of the month.

So, even people who are salaried or retired and do not carry on any business or occupation but pay rent above Rs 50,000 per month with the new rules, will have to deduct tax from such rent at the source. This would put those individuals that are collecting rent into the tax net by leasing out the property to individuals who are not interested in any business or occupation.

Rent payer TDS rate Threshold limit Companies, firms, trusts or association of persons, etc. and individuals, where the payer is involved in a business whose accounts were audited. 10% of the rent. TDS has to be deducted if the average of the rent paid or likely to be paid during the year exceeds Rs 2.40 lacs. Individuals and HUFs are not covered in the above section. 5% of the rent. TDS has to be deducted if the rent per month is more than Rs 50,000. 

How is TDS calculated on rents?If the lessor is a non-resident for income tax purposes, in compliance with the provisions of Section 195 of the Income Tax Act, the payer must deduct tax without any threshold cap of Rs 2.40 lakhs per annum being levied.

It is not necessary that the owner of the property should be the receiver of the rent. So, in the event that a lessee sub-leases to some other individual the property taken by him on rent/lease, the sub-lessee must subtract the source tax.

Similarly, the tax must be deducted from payments made to hotels in order to provide you with lodging if the rent is expected to reach the cap for the year.

For TDS, is TAN mandatory?These provisions only apply to the receiver of rent who is a resident for the purposes of income tax, because, under section 195 of the Income Tax Act, non-residents are already covered. While the current provision allows the TAN number to be collected by individuals, the new provision excludes payers from such a condition.

Form for Payment of TDSLog on to www.tin-NSDL.comto pay TDS for the rental. You will find a link on the website to fill out Form 26QC. Fill in all your information, your landlord’s details, and all the financial transaction details. If you share the accommodation, they must also furnish their information. Similarly, if the landlord co-owns the property with someone else, the form must also include their information.

We hope that the above-written information was helpful for you, for any inquiry you can connect with us at any time.

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Author: Piyawut Sutthiruk

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