Why Should You Cut TDS When Paying Rent In Excess of Rs. 50000?

   Posted on 6th Jul 2017 17:19:31 in Tax Savings

The taxpayers in India are witnessing a huge shuffling in the taxation strategies. People are on alert and attentive to any announcement made by the Income Tax Department and Finance Ministry. In this context, a new rule is implemented by the government for tenants who are paying rent of Rs. 50000 or more per month.

According to the new changes in section 194 IB of Income Tax Act, the scope of withholding tax has been widened. Now, individuals are made responsible for deducting TDS (deduction at source) on rentals exceeding a specified amount.

Actually, it was realized that rentals in metro cities are quite high and many people meet with the obligation of this change in withholding the tax. Individuals who were not compliant with income tax were also bound by it if they were paying Rs. 50000 as rent and they managed relevant documents for that.

If you are worried about this new rule, then here is some good news for you. The government has eased the formalities for tenants. Central Board of Direct Taxes (CBDT) has issued some points related to compliance requirement on 8th June 2017.

Don’t Revise Agreement:

Tax experts have advised that revising rent agreement to stay out of TDS obligation is not the ideal decision to make. Many tenants are looking to split their rent agreement and show rent below Rs. 50000 limit and remaining amount are recorded in the accounts of furniture hire or etc. It is noticed that tenants are looking someway to escape the entire process but this splitting agreement may land you in deeper problems.

Professionals said that revising an agreement in a midway will make your intentions suspicious for the department. Only people entering into a new agreement can follow the technique of splitting agreement and make a separate agreement if he or she is actually paying for furniture hire. Apart from that, charges of furniture hiring should be realistic in terms of value-to-money.

Talking to another tax expert, it was revealed that there are many complications in splitting agreement. Not only this would make you culprit of violating the law but also there are many glitches involved in justifying rent of furniture hire. Irrelevant asset valuation and unconnected rent of furniture can expose you and action can be taken by tax officials.

Such tenants should keep in mind that paying rent without deducting tax can incur heavy penalties. You may be levied with an interest of 1% per month for non-deduction and 1.5% for non-payment of TDS after deduction. Non-filing of statement after a limit would attract penalty of Rs. 200 per day for the period of delay.

Comply With New TDS Rule:

The government has given individuals many concessions to make them compliant with the new TDS norm. There is no obligation to acquire TAN number for deducting TDS. It is the biggest relief as it was mandatory for tax deductor to obtain TAN number in other cases. It is not necessary for a tenant to deduct tax every month. Instead, you can do it once in a year. You can credit TDS in the last month of a financial year or last month of tenancy if you are leaving that space earlier.

For example, if someone pays Rs. 85000 rent per month then tenant has to deduct Rs. 42500 at 5% on an aggregate value of 8.5 lakhs as on March 2018 and pay to the income tax department. Remember, the rule is enforced from 1st June and rent should be calculated for 10 months (1st June 2017 to 31st March 2018) for the current financial year.

In the case, landlord doesn’t have PAN number, you have to deduct higher TDS –as much as 20% should be withheld. But, this amount should not exceed the rent payable of last month of tenancy or last month of the financial year.

TDS deducted should be paid within the stipulated time prescribed in the notification. Deductor has to pay or credit the amount within 30 days after the end of month in which TDS is deducted. For that, you have to file form 26QC which is a Challan-cum-TDS form. It has to be submitted electronically at NSDL portal and remit TDS amount through SBI or RBI or any other authentic bank electronically.

Same NSDL portal will release form 16C within 15 days. It should be downloaded and handed over to the landlord. These both forms – 26QC and 16C contains general details regarding name, PAN, address, communication details, etc. of the landlord and tenant along with details of rent and TDS deductible. 

In an exceptional case where you pay rent to non-resident, then the rule of section 194-IB will not apply. Payment made to non-residents comes under section 195 and taxes are applicable to them accordingly. Secondly, if you are professional or businessman and are eligible for tax audit under section 44AB, then section 194-I is applied for your rent payment. In such cases, tax should be deducted at 10% if rent payment is above Rupees 1.8 lakhs in a financial year.

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