Renting a flat in India is a common practice, whether you are a tenant looking for a comfortable living space or a landlord seeking to generate rental income. However, many overlook the obligation to deduct Tax Deducted at Source (TDS) on the rent paid.
In the world of taxation, the concept of TDS (Tax Deducted at Source) plays an essential role in financial transactions. In the case of sharing rent, you can be personally responsible for the TDS deduction in India.
After learning about TDS on rent, it is also important to know more about what the term ‘rent’ means. Rent is equal to any payment made under any sub-lease/lease/rental/ agreement for the use of the following:
- Building (including office buildings)
- Land attached to any building (including office buildings)
- A workplace such as a factory or office
- Tools, computer systems, communication systems, other resources, and other equipment needed to do the job
- Machinery for Operation
- The installation of the equipment
In this article, we will explore the aspects of TDS regarding rental flats so that you can understand the rules, restrictions, and pricing associated with it.
1. TDS on Rental Flats
Before delving into the specifics, let us clarify what constitutes TDS on flat rent. TDS is a mechanism the Government of India uses to ensure that tax is deducted at the source of income. When you choose to rent, the lease means that shares must be kept and remitted to the government as taxes. It helps the government collect taxes more efficiently and encourages transparent financial transactions.
2. TDS Implications
The issue of TDS on rent is Section 194-I of the ICT Act. There are a few important rules you should know:
Tax (TDS) has to be paid to the government after the deduction of rent due to the rent payer TDS is applicable in case the aggregate amount of rent expected to be paid/credited or paid/deducted exceeds `2,40,000 in any financial year as per Union Budget 2019-20 (and this limit is ` 1,80,000 previously).
Here’s a simple example: Suppose you and your friend share a flat, and the annual rent is ₹4.80 lakh. In this case, you can deduct TDS on your respective rent shares if they exceed ₹2.40 lakh each.
Individuals or Hindu Undivided Family (HUF) not subject to tax assessment must deduct 5% tax (TDS) on rent. This is in case of payment of more than `50,000 per month to a resident Indian. This change is effective June 1, 2017.
3. TDS on Rent
Deduction happens once you have determined whether TDS applies to your mortgage, for the next step is to determine the amount deducted. The TDS rate for flat rentals is 10%. It means deducting 10% of the rent before paying your landlord. For example, if your monthly rent is ₹20,000, you will deduct ₹2,000 as TDS and pay the remaining ₹18,000 to the landlord.
4. Receipt of Householder PAN
To comply with TDS rules, you must ensure your landlord has a Permanent Account Number (PAN). PAN is a unique 10-digit identification number issued by the Tax Department. Responsibility to obtain your landlord’s PAN before TDS is deducted is necessary. If your landlord does not have a PAN, you should inform the tax authorities about it. Many tenants are unaware of this process, or the landlords may deny sharing their PAN. In those cases, be vigilant and act immediately.
5. TDS returns
After deducting TDS on flat rent, you must fulfill the filing requirements. It involves the quarterly filing of TDS returns using Form 26QC in the government online portal. Failure to provide these documents may result in fines and legal penalties. It is necessary to plan and ensure that these obligations are met promptly.
Here are the key steps that investors and tenants should take regarding TDS on flat rent
- Awareness: Both parties should know their TDS obligations and the thresholds that trigger TDS.
- Documentation: Ensure that the rental agreement includes the PAN details of the landlord and tenant. Keep records of TDS certificates.
- Timely Deduction and Deposit: Tenants must diligently deduct and deposit TDS on time to avoid penalties.
- Filing Returns: Landlords should include rental income in their tax returns and claim credit for the TDS deducted by tenants.
- Consultation: For complex cases or doubts, seeking professional tax advice is advisable to ensure compliance.
To summarize, the shared rent of a flat in India is subject to TDS deduction if the annual rent exceeds ₹2.40 lakh. Understanding TDS’s rules, restrictions, and value on rental property is essential to ensure compliance with tax laws. By following these guidelines and diligently carrying out your obligations, you can easily navigate the world of mortgage taxes and avoid potential legal issues.
Is TDS on flat rent applicable to individual tenants in a shared flat?
Yes, TDS on flat rent applies individually to each tenant if their total annual rent exceeds ₹2.40 lakh each.
What should I do if my landlord does not have a PAN for the TDS deduction?
If your landlord does not have a PAN, you should inform the tax authorities about it. However, it’s essential to encourage your landlord to obtain a PAN to comply with tax regulations.
What are the consequences of not filing TDS returns for flat rent deductions?
Failure to file TDS returns can result in penalties and legal consequences. To avoid such issues, it’s crucial to stay organized and submit quarterly TDS returns using Form 26QC through the government’s online portal.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.