If you rent out your property, your tenant may be required to deduct ‘tax deducted at source’ i.e. TDS on rent you receive (the landlord).
The income-tax law divides TDS on rent paid into two categories: rent paid by a businessman and rent paid by an individual or Hindu Undivided Family (HUF).
TDS on rent paid by a businessman is governed by Section 194I of the I-T Act, whereas TDS on rent paid by an individual or HUF is governed by Section 194IB.
Is Your Tenant Liable?
Tenants who pay rent above a certain threshold must deduct TDS and deposit it with the government. These TDS provisions place a significant burden on the tenant rather than the landlord.
Individuals or HUFs whose books are not required to be audited and whose rent is insignificant are exempt from TDS. Even if he/she is not subject to a tax audit, an individual or HUF with a monthly rent of Rs 50,000 or more is required to deduct TDS at the rate of 5%.
TDS on Rent Paid to a Non-Resident Indian
If the landlord is a non-resident, the rules are slightly different. TDS, in this case, is deducted at a rate of 30% under Section 195.
If the NRI is in a lower tax bracket, he/she can obtain a lower-rate certificate from the I-T department based on the actual tax rate he/she is required to pay on his/her rental income (after deducting 30 per cent standard deduction). In this case, the tenant is required to deduct TDS at the rate specified in the certificate.
It should be noted that there is no exemption limit for TDS on rent in the case of a non-resident landlord.
TDS Must Be Deducted Only Once.
TDS of 5% must be deducted when crediting rent for the last month of the fiscal year or the last month of the tenancy if the property is vacated during the year.
Penalty for Failing to Deduct TDS
If TDS is not deducted on time, a penalty of 1% simple interest per month is levied until the TDS is finally deducted and paid to the government.
Tenants who pay rent above the threshold limit must be especially cautious when it comes to TDS fillings. If they find it difficult to do this on their own, they should hire a chartered accountant or a tax lawyer.
A person who deducts TDS must also issue a TDS certificate.
To avoid penalties, issue the TDS certificate on time. TDS certificates in Form 16C must be issued within 15 days of the TDS amount being deposited using challan-cum-statement in Form 26QC.
The finance minister increased the penalty for late payment in this year’s Budget.
Donald G. is the Principal Consultant at NRI Money+. He specialises in creating personalised financial plans for NRIs (Non-Resident Indians) and HNI (High Net-worth Individuals).
