Last Updated on 9 months by Anoob P T
TDS on Rent is something all home owners need to be aware of. In this post, we look at TDS on Rent, Categories, Deduction& GST Rules You Should Know.
If you are anware, there were certain amendments in tax deductions on rent which was brought in 2017 and 2019. Before the application of this tax changes, TDS on Rent was supposed to be paid by only a specified category of businesses and professionals. However, the newly introduced changes require salaried employees and people belonging to HUF to pay TDS on rent.
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What is TDS on Rent?
TDS on Rent comes under Section 1941 which says that the person who is responsible to pay rent is liable to pay tax at deductible source in case the aggregate of the amount of rent credited or paid or likely to be credited or paid during the financial year exceeds Rs.1,80,000/-.
However, certain amendments were made which increased the rent limit from Rs.1.8 lakhs to Rs.2.4 lakhs. Furthermore, individuals and/or HUFs who are subject to tax audit are also under an obligation to deduct the tax at source which was not the case in the earlier scenario. The government introduced such a provision to cover the income by way of rent under tax deduction at source.
TDS on Rent Deducted by Different Categories of Tax Payers
- Professionals and Businesses falling under the scope of Section 44AB
The TDS on Rent was deducted from professionals and businesses if the rent paid was Rs.1.8 lakhs per year. With effect from the financial year 2019-20, the limit was increased from Rs.1.8 lakhs to Rs.2.4 lakhs per annum. The tax deductible is at the rate of 10% from the rent paid per year.
Only professionals and businesses who are required to get their tax audit conducted by a CA under Section 44AB belong to the category of this type of tax deduction. Others who need not have to get a tax audition is exempted from TDS on Rent irrespective of the amount of payment during the year.
- Other types of Tenants—Salaried and not falling under the already mentioned category
Tenants belonging to this category were not required to pay TDS on rent till 2017. The 2017 amendment decided that those salaried tenants as well as people not belonging to first category have to pay TDS on Rent if the rent per month is more than Rs.50,000 per month.
These people who do not belong to the first mentioned category are Salaried tenants and the businesses and professionals not falling under the scope of Section 44AB. For these people, the tax deductible for rent is at the rate of 5% from the total rent paid or payable.
Section 1941: TDS on Rent in the case of Businesses and Professionals who is required to get a Tax Audit
As said before, the Businesses and professionals who are required to get a Tax Audit and has rent above Rs.2,40,000 have to pay TDS at the rate of 10%. The limit of Rs.2.4 lakhs is applied per annum. However, if an asset or property is co-owned by two persons, then TDS need to be paid if each person gets a rent amount of Rs.2.4 lakhs per annum.
However, no TDS is required if the person belongs to individual or HUF category and does not require to get a tax audit done under the Section 44AB. This section is applicable to professionals or businesses with a turnover of more than Rs.50 lakhs and Rs.1 crore respectively.
Section 1941: TDS on Rent in the case of other Category Taxpayers
Earlier, people who do not require to get a Tax Audit under section 44AB was exempted from TDS on Rent. However, this resulted in many people were not required to pay tax. Hence, the newly introduced amendments widened the scope of tax payers and with effect from June 2017, if an individual or HUF that pays rent more than Rs.50,000 per month is included in TDS on Rent.
The rate of tax deductible for people belonging to this category is at the rate of 5%. In addition, they have to pay the tax only at the end of the year rather than on a monthly basis. If the tenants vacate before the end of a year, the tax is to be paid at the end of the vacating month.
TDS exclusive of GST
GST at the rate of 18% is liable if your landlord receives an amount which equals Rs.20 lakhs or more as rent from one or more sources. However, GST is not levied on renting residential properties but on all other types of property.
Lower/ Nil Deduction of TDS on Rent
The TDS deducted on rent can be claimed as credit at the time of the filing of income tax return and the receiver would only be required to pay the difference in the tax which was actually payable or the computed amount and the TDS on rent that has been deducted.
However, if the income tax computed is less than the TDS deducted, the receiver of rent can request for TDS refund for the excess TDS deducted.
Form 15G for request for Nil/ Lower Deduction of TDS on Rent
The Budget 2016 brought new amendments for people receiving rents and had Nil tax applicable for them. The recipient of such payment can file Form 15g/ 15H for non-deduction of TDS.
TDS on Advance Rent
If the tenant pays Advance Rent to the landlord, TDS on Advance Rent is also liable to be deducted.
However, the Income Tax department vie Circular No.5/2001 dated 2/3/1001 has notified that in cases where the advance rent is spread for more than 1 financial year, credit of TDS on Rent shall be allowed in the same proportion in which such income is offered for tax based on the single tax credit certificate issued for the entire advance rent or the asset is sold or transferred by one person to another, credit for the TDS on rent has not been availed till the date of sale or transfer shall be allowed to the new owner.
If the advance rent is paid and TDS on rent is also deducted, and the agreement gets cancelled, there will be a refund of TDS amount to the tenant. The landlord in such cases has to state in his ITR form that the agreement stands cancelled but TDS deduction has not been claimed.
Important points regarding TDS on Rent
- The Receiver of rent shall intimate his PAN Card No. to the party from whom he is receiving the payment. If not, TDS on Rent shall be deduced at the rate of 20% under section 206A.
- Surcharge is not applicable on TDS on rent except where payment is made to a foreign company and the amount exceeds Rs.1 crore.
- No Education cess or secondary or higher secondary cess is to be additionally charged on TDS on Rent.
- If a non-refundable security deposit is being made by the tenant, TDS would also be liable to be deducted on it as it represents the consideration for the use of an asset. No TDS would be deducted on refundable deposits.
- If the municipal tax, ground rent etc are paid by the tenant, no TAX would be deducted on that.
- If payments are made for hotel accommodation on a regular basis, TDS on rent shall be deducted.
How to calculate TDS on rent?
TDS on Rent depends on the category of taxpayer you belong to. If you are a professional or business person with more than Rs.2.4 lakhs as rent, the tax id deducted at the rate of 10%. Hence, if the rent is Rs.3 lakhs, the amount deducted as TDS on Rent is 10% of Rs.3 lakhs, which is Rs.30,000.
