Do you know that Individuals also need to deduct TDS on Rent paid to landlords and failing to deduct TDS can attract hefty penalties? Don’t worry we will learn about the rule and how to deduct and pay the TDS amount.

I will try to explain this without going into the intricacies and avoiding complicated wordings of the income tax act. After reading this blog you (individual) will get all the knowledge required to navigate this tax hurdle with ease.

What is TDS?

TDS stands for Tax deducted at source. This is done by the government primarily for 2 purposes:

  1. To spread a wider net and collect taxes even from those persons (individuals or organizations) who would have otherwise not paid taxes on those transactions or at all.
  2. To get tax on time

This is the same TDS that is deducted from salaries that they receive from their respective organizations (if they earn above a certain threshold).

TDS on Rent payment is applicable to me?

Generally, TDS on rent payment was applicable to organizations or professionals who get their tax audits done by CA. However, recent amendments have brought the salaried and the other category of businesses and professionals also into this net.

So, even as an individual – yes if you are paying rent above a certain limit then you are liable to deduct TDS on rent payment.

So what is the TDS for Rent limit?

For individuals – if you are paying greater than 50,000/- per month in rent then you need to deduct TDS on rent under section 194IB

Now the next question would be about

TDS Rates: How much do I deduct?

Individuals need to deduct 5% TDS on rent

This amount need not be deducted monthly. This can be deducted in a single transaction at the financial year-end. However, if you are vacating the property before that, then you have to deduct it in the last month of stay/ tenancy.

What all to know and do, to pay the tax deducted

Taking TAN number is not necessary to deduct TDS on rent

Once the amount is deducted, the same has to be submitted to the government through form 26QC @ Tax Information Network website

The last date is 30th April in case the amount is deducted in March, however, for other months it is on or before the 7th day of the next month. Best pay it as soon as possible – along with rent payment to the landlord. It’s never a good idea to keep government money – worse if you forget about it.

Details of the landlord, property, and amount would be required to fill the form so keep those handy.

After filling those details the amount can be paid via online payment methods.

You will need to provide a TDS certificate (Form 16C) to the landlord within 15 days after the last allowed date of filing 26QC. So for 30th April, it would be 15th of May. Form 16C is available on the Traces website and can be downloaded after about 3 days of submitting the tax.

Penalties in case of non compliance

TDS penalty can run in Lakhs

In case you don’t deduct TDS on Rent: You have to pay 1% interest as a penalty for every month’s delay

In case you deducted TDS but did not deposit it: You have to pay 1.5% interest as a penalty for every month’s delay

If you delay filing form 26QC: The late fee is 200 per day. If it is not filed even after 1 year of the due date penalty can be between 10k and 1L.

If you have filed 26QC but not issued 16C: Late fee is 100 per day.

Other salient points to keep in mind

If the landlord does not give their PAN – the tax deduction has to be 20% under Section 206AA – generally should not be the case for individuals most of which would want HRA benefit. If still they don’t give PAN, I doubt they will accept tax deduction from payments which will defeat their purpose of not giving PAN.

If the security deposit is refundable – TDS is not applicable. However, if it is non-refundable it has to be treated as rent and TDS on rent is to be deducted on that amount as well.

TDS is applicable on non-GST amount – What? Do I need to pay GST on rent? Yes, in some cases – story for another day.

Final Words

Now before you think that renting is a hassle and let’s buy a new house instead do read about managing assets and liabilities to achieve the desired financial goal. Also, let me know if you think this was useful.

Categories: Tax

Ravi Maheshwari

Ravi is an IIM ranker with over 9 years of work experience and has helped optimize the financial performance of companies like BPCL, Sun, Ola, Swiggy, and Curefit. In this blog, he explains how to improve personal finance and also gives insights into financial models of companies.

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