I live in a flat and the monthly rent is ₹36,000. My employer contributes ₹19,000 towards the rent and I bear the remaining. Should the employer deduct tax deducted at source (TDS) as they are paying less than ₹2.4 lakh per annum?
It is not clear from the facts whether the rental agreement is between you and the landlord or between your employer and the landlord and who is responsible to pay the rent. Hence, we have assumed two scenarios. Additionally, we have assumed that the landlord is a tax resident in India.
Case 1: Assuming the lease agreement is between you and the landlord. You pay the monthly rent of ₹36,000 to the landlord and your employer pays ₹19,000 to you. As the monthly rent is below ₹50,000, there is no need for you to deduct TDS, assuming that you were not subject to tax audit in the financial year (FY) immediately preceding the FY in question. Further, if your employer pays ₹19,000 to you for rent, the payment shall be taxable in your hands in the nature of salary. The employer would need to deduct tax on such payment under Section 192 of the Income-tax Act as applicable to salary income. If the payment made by your employer to you is in the nature of house rent allowance (HRA), you will be eligible for availing HRA exemption as per the rules.
Case 2: Assuming the lease agreement is between your employer and the landlord. The employer pays the monthly rent of ₹36,000 to the landlord and recovers ₹17,000 from your salary. The payment made by your employer to the landlord would tantamount to rental payment. As the annual rental payment by your employer to the landlord would exceed ₹2.4 lakh, the provisions of section 194-I, i.e. TDS on payment of rent, shall be applicable and a tax deduction of 10% would need to be done by the employer from such rental payment.
Separately, such arrangement would tantamount to concessional accommodation provided to you by your employer and a perquisite would need to be computed as per the prescribed rules and shall be taxable as salary income in your hands. The employer would need to deduct tax on such perquisite provided to you under Section 192 of the Act, as applicable to salary income.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at firstname.lastname@example.org