TDS on Personal Rent u/s 194-IB

Applicability

• For those small business which are not liable for tax audit u/s 44ab
• Personal rent of house for salaried individual claiming HRA

Rate of TDS

• 5% exceeding 50,000 per month

When is to be deducted?

• At the end of financial year OR
• At the end of agreement between landlord and tenant

Remember TDS is to be deducted only one time in a year

Let me explain you with the help of examples

(1) Suppose Mr X, a tenant pays Rs. 60,000 per month to Mr Y, a landlord. Whether TDS to be deducted?

Ans. Yes it is to be deducted since it exceeded 50,000 per month.

Amount of rent = 60000*12 = 7,20,000

Amount of TDS = 7,20,000*5% = 36,000

Rent payable to landlord during March = (60000-36000) = 24,000

For the rest of the month whole 60,000 will be paid to landlord

(2) Suppose rent agreement between landlord and tenant made for the period April to July. Amount Rs.60,000

Since amount exceeded 50000 and tenancy agreement made for 4 months therefore TDS to be deducted @5%

Amount of rent for 4 months = 60,000*4 =
2,40,000

Amount of TDS = 2,40,000*5% = 12,000

Amount payable to landlord at the end of tenancy agreement = (60,000-12,000) = 48,000

For the rest of the month whole 60,000 will be paid to landlord

Also PAN of Deductor is required Not TAN.

RULES:-

• If there are multiple tenants living under the same roof and altogether they pay Rs. 50,000 or more as rent, then they don’t have to follow the TDS norms mentioned. But the landlord has to make sure that the names of all the tenants are included in the agreement. If not, it will raise further questions.
• However, if many tenants are staying under the same roof but only of the tenants pay the rent, then TDS will be applicable. This happens when only one tenant pays the rent and all others pay that single person.
• CBDT has given some relief to those students and employees who are staying under the same roof in different cities. This will help ease the burden on the newly employed individuals or students.
• The rest of the regulations and norms remain the same. Just like while buying a property a 1% TDS is cut, you (the tenant) have to cut a 5% TDS under Section 194-IB. You have to deposit it within a month.
• If the tenant fails to produce the TDS to the authorities, there is a fair chance that the landlord will also have to pay the penalty with interest. The rate of interest for a penalty like this is fixed at 1 to 1.5 per cent per month. It shall be borne by both the landlord and the tenant.
• The method of payment of TDS has been simplified now. All you have to do is take the 26QC forms from the RBI authorized banks and submit them. You will need PAN number of the landlord to complete the process.
• If the PAN of the landlord is not available, then 20% tax shall be deducted instead of 5%. After that the tenant also has to issue a Form 16C file to the landlord within 15 days. This type of form is just like the Form 16C of the salaried people.
• It is the tenant who will pay the TDS. This is why the landlord has to disclose to him how much he is making as rental income. But if he doesn’t disclose that and if somehow the tenant does not pay the TDS, it will be the landlord who will have to pay the penalty.
• On the other hand if TDS is deducted, then the landlord can take the credit for the fund and file for a refund. Hence it becomes easier for the landlord to keep a track of the credit.

Conclusion
The rental prices in the metro cities are sky high. Therefore a lot of people will fall under these new criteria since the amount is now heightened to Rs. 50,000 and above. Also, the rules are modified, this means that a lot of people who were previously not paying TDS will come under this rule.
Also, it is easier to clear your remittances now. You can also pay the government via electronic methods. Use the 26QC form to submit this document at any authorized bank. The main idea behind making the norms easier is that the users don’t declare fake HRAs to take more money. This in turn creates a lot of black money floating in the realty sector. This hurts the sector as well as the government expenditure. To curb this, from now on the landlord will have to hold a thorough document entailing the different aspects of the agreement.