Is your rent over 50K per month? Deduct 5% TDS

June 15, 2017

The Income Tax Act, 1961 introduced a new Section 194-IB by the Finance Act, 2017. This section has expanded the scope of withholding tax by making individuals also responsible for deducting tax at source on rental payments if they exceed the specified limit.

From June 1, individuals who pay a rent over INR 50,000 per month are required to deduct TDS @ 5%. The amendment in the new section brings many tenants in its purview who will have to meet the obligations of withholding tax, depositing it with the government and also filing relevant documentation. On June 8, Central Board of Direct Taxes (CBDT) has issued a notification pertaining to compliance requirements by tenants.

As per the notification, keep the following points in mind while filing the TDS-

1. As a tenant, you are not required to deduct TDS every month. You can deduct TDS in the last month of every financial year. However, in case you are vacating the house, then you can deduct TDS in the last month of the tenancy.

2. Also, there is no requirement of TAN (Tax Deduction and Collection Account Number) by tenant. PAN is sufficient for filing TDS by tenant.

3. Once, you have deducted the tax, you will have to pay the credit to central government within a period of 30 days from the end of month in which TDS is deducted. This has to be done in Form 26 QC.

4. Transfer the tax so deducted electronically to Reserve Bank of India or State Bank of India or any other authorized bank.

5. Give a certificate of tax deduction at source in Form No. 16C to the payee within 15 days from the due date of challan cum statement in Form No. 26QC.

6. In case you are paying rent in advance then the TDS is required to be deducted on the adjustment of such deposit against rent.

The Income Tax department is trying to keep a tight rein on real estate transactions to ensure black money is not generated from this sector. This TDS trail will also serve as an evidence for people seeking significantly high House Rent Allowance. If the tenant fails to deduct the TDS or fails to deposit the TDS with the government then he will liable to pay the penalty of 1 percent and 1.5 percent respectively.