This is how tenants have to collect TDS on the rent they pay to landlords
As per the Finance Act 2017, effective from 1 June 2017, a tenant (individual or Hindu Undivided Family (HUF)) paying house rent of more than Rs50,000 a month needs to deduct tax from the rent.
The amendment in the Act has been brought in to widen the scope of withholding tax (where the payee of an income has to withhold tax). To make the process simpler for tenants the Central Board of Direct Taxes (CBDT), in a notification (No. 48/2017/F. No. 370 142/16/2017-TPL / GSR 561(E)) dated 8 June, has introduced new forms to deposit the deducted tax and issue certificates of deduction to landlords.
If you are a tenant, here is what you have to do.
Collecting and filing tax deducted at source
A tenant is required to deduct tax if the monthly rent paid by her is more than Rs50,000. Where landlords have provided their Permanent Account Number (PAN) to tenants, the TDS (or tax deducted at source) has to be deducted at the rate of 5% of the monthly rent. In cases where PAN is not provided by the landlord, tax is to be deducted at a higher rate, but it should not exceed the amount of rent payable for the last month of the preceding financial year or the last month of the tenancy.
Typically, TDS has to be deducted as and when a payment is made, but to make it simple for individual tenants, in this case it has to be deducted only once a year or at end of the tenancy.
“In order to reduce the hardship on the tenants, the withholding tax on rent is not required to be deducted and deposited on a monthly basis, but only once at the end of the financial year or if the tenant vacates the premises during the year, in the last month of tenancy,” said Suraj Nangia, partner, Nangia & Co. LLP.
Besides that, to bring down the compliance burden, tenant (deductor) is not required to obtain Tax Deduction Account Number (TAN).
Once a tenant deducts the TDS, the tax needs to be deposited within 30 days from the end of the month in which the deduction is made. It can be deposited electronically by filling the challan-cum-statement in Form No. 26QC. This form is currently not available on the e-tax payment system website www.onlineservices.tin.egov-nsdl.com, but is expected to be made available soon.
To fill the 26QC form, tenants have to enter their own details as well as the details of the landlord. This would include information such as: name, PAN, address, mobile number and email address.
Other details that have to be provided are: number of tenants and/or landlords, period of tenancy, total value of rent paid and value of rent paid last month, amount of TDS that has been deducted and date of deduction, details of tax deducted, interest and fee along with date and mode of payment.
The certificate of deduction
After paying the tax and submitting form 26QC, tenants would be able to download Form No. 16C, the certificate of deduction of TDS, from e-tax web portal, give it to the landlord. This should be done within 15 days of submitting Form 26QC.
Form 16C will carry details such as name and address of the deductor (that is, the tenant) along with PAN, name and address of the deductee (the landlord) along with PAN, details of how much tax was deducted and deposited, the date of payment on which the tax was deposited.
Penalties for non-compliance
Failure to deduct TDS, or deposit it within the specified time, can attract interest and penalty. “(Penal) interest for non-deduction would be 1% per month of the withholding tax, whereas for non-payment it would be 1.5% per month,” said Nangia. Also, “Fees for late filing of TDS returns can be Rs200 per day of delay and penalty ranges from Rs10,000 to Rs1 lakh,” he added. Besides penalty and interest, defaulters can also face imprisonment. “(They) shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but may extend to 7 years and with fine,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP, a chartered accountancy firm.