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2017

TDS Mandatory if Rent Exceeds Fifty Thousand

  • The government made a very important announcement for people living in metropolitan cities. Now people staying in rented accommodation paying more than Rs. 50,000 per month as rent are required to deduct tax on behalf of their landlord. Government has taken this step to widen its tax net. However, this has put additional tax compliance burden on the rent payers.
  • It has proposed to introduce a new section, 194-IB in the Income Tax Act to provide that an individual or a HUF (other than those covered under 44AB of the Act), responsible for paying rent to a resident exceeding Rs. 50,000 for a month or part of month during the previous year, shall deduct an amount equal to 5% of such payment as income-tax thereon. The following amendment will take effect from the date budget gets the final approval from the President of India.
  • Further, a proposal has been made in the Act that tax shall be deducted on such payment at the time of credit of rent, for the last month of the previous year or the last month of tenancy if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier. It is also proposed to provide that tax so deducted shall be deposited only once in a financial year through a challan-cum-statement to be notified soon.
  • However, there is one relief for you. To reduce the compliance burden on rent payers, the government has proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act and the deductor shall be liable to deduct tax only once in a financial year.
  • It is also proposed to provide that where the tax is required to be deducted @ 20% in case where landlord does not provide his PAN, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, depending on the situation.

Penalty for non-compliance

  • Non-compliance with the TDS provisions like failing to file TDS return on time or not deducting the right amount of tax can cause problems for you.
    • Implication of Non Deduction: Interest @ 1 % p.m. of such tax from the date on which such tax was deductible till the date on which such tax is deducted.
    • Implication of Non Payment: Interest @ 1.5% p.m. of such tax from the date on which such tax was deducted till the date on which such tax is actually paid.
    • Fees for Late Filing of TDS return: Under section 234E, a fee of ₹ 200 per day would be levied for late furnishing of TDS statement from the due date of furnishing of TDS statement to the date of furnishing of TDS statement, maximum up to amount of tax deductible.
    • Penalty for failure to furnish TDS Return: The penalty can be charged between Rs. 10,000 and Rs. 1 lakh.
Financial Management