Are you paying rent of more than Rs. 50,000 per month? Then you must read on!

We are at the end of another financial year – 31 March is only few weeks away. But this year end is not like any other, especially if you are a salaried employee or you run a business to which audit under income tax does not apply (i.e. businesses with turnover less than Rs. 200 lakhs). What makes this year end so different for you?

You guessed it right – taxes! From this year onwards, individuals paying rent in excess of Rs. 50,000 per month will have to do TDS in the month of March.

We have compiled a few FAQs on this matter. Please read on to know more

Who should deduct tax on rent?

Individuals paying rent in excess of Rs. 50,000 per month would be required to deduct tax. You could be a salaried employee or be running a business. You could also be a home maker who has taken the property on rent in your name. So long as you are paying rent in excess of the said amount, you have to deduct tax

Should I deduct tax on renting of residential property only?

No. It does not matter what kind of property is rented. It could be a residential property or a commercial property. You sill have to do TDS.  

What if my landlord is staying outside India? Should I still do TDS?

TDS will have to be done if the payment of rent is made to a resident. If rent is paid to a NRI / non-resident, TDS will have to be done as per existing laws under section 195 of the Income Tax Act.

But please note, that it is not sufficient that the landlord / lessor is staying outside India – it is important that you confirm his / her residential status under the income tax law. A frequent traveller could be a resident of India even if he / she stays outside India. Stay in India for more than 182 days establishes residence in India.

At what rate should I do TDS?

TDS will have to be done at 5% and the entire amount for the year will have to be deducted in the last month of the financial year (i.e. March) or the last month of tenancy.

For example, the monthly rent is Rs. 60,000 and the annual rent is thus Rs. 7,20,000 (Rs. 60,000 X 12 months). TDS will have to be done at 5% on Rs. 7,20,000 = Rs. 36,000

Please note that this translates to 60% of the monthly rent for March. It is better to inform your landlord in advance about such deduction. They may feel that you are not paying rent correctly and could ask you to cough up more.

Somebody told me that TAN is needed to do TDS. Is that needed here too?

TAN stands for Tax Deductor’s and Collectors Account Number. TAN is needed to map the taxes that you deduct to the Permanent Account Number (PAN) of the recipient. However, in the case of TDS on rent being discussed above, TAN is not needed.

My landlord is asking for a tax certificate. What is that?

The tax that you deduct will have to be deposited with the government by 30th of April using Form 26QC. Once deposited, generate tax certificate in Form 16C. The tax certificate will have to be downloaded online. 

My landlord does not have a PAN. How do I comply with the law?

If the landlord does not have a PAN, then tax will have to be deducted at the higher rate of 20%. However, the amount of TDS cannot exceed the last month’s rent. Thus, the total amount to be deducted will be equal to the last month’s rent.

 Salaried employees similarly face this challenge at the time of submission of their proof of investments when the amount of rent is more than Rs. 100,000 per annum. There is a practical challenge with respect to TDS on rent as well.

To sum up

• Obtain PAN of your landlord / lessor and inform him about the TDS in March if you are paying more than Rs. 50,000 per month.
• Deduct tax at 5% on the rental payment made in the year (from 01-June-2017 as the law was introduced with effect from that date)
• Deposit TDS with government before 30-April-2018 using Form 26QC
• If you have more than one property on rent, you have to file 26QC individually for each property
• Generate Form 16C from TRACES website and submit it to your landlord.

How can BCL India help me stay compliant?

We, at BCL India, would be happy to help you deduct tax on rent, file form 26QC and also generate Form 16C as required under law. We would be happy to address any questions that your landlord may have as well.

Please feel free to write to us on pavan@bclindia.in or info@bclindia.in. You can also drop us a note on http://bclindia.in/contact/

In case of any questions, please do not hesitate to reach out to us on pavan@bclindia.in or ankush@bclindia.in or write to us on bclindia.in/contact/. We would be glad to be of your assistance.