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If you are sharing a flat, then claiming tax deduction on rent can become complicated. In this piece, we discuss five things that you should watch out for.

Ensure your name is on the agreement

It is very important for your name to be on the lease agreement or the leave and license agreement for the flat. Without this, you will not be able to claim tax deduction on the rent you have paid.

This requirement applies irrespective of whether you get a house rent allowance (HRA) from your employer or not, but want to claim tax deduction on rent under section 80GG.

Tax deduction on rent should be in proportion to the payments you make.

When you are sharing a flat, there may be some doubt about what proportion of the total rent you can claim as tax deduction. According to Prakash Hegde, a Bengaluru-based chartered accountant, if there are 3-4 people sharing the same premises, one can claim the deduction in proportion to the money you have actually paid as rent.

For example, if the total rent is 30,000 and you are paying 7,000, then you can only claim 7,000 per month as house rent deduction.

If you are staying in a (paying guest) PG accommodation, keep rent and food payments separate

“If you are staying in a PG and your rent and food are bundled in a single payment, you will not be able to claim the deduction for rent. Keep the payments separate," said Hegde.

“If your rent paid per annum is more than 1 lakh, you need to have the landlord’s Permanent Account Number (PAN) number to claim deduction. Even your employer will ask for the PAN in such a case, for tax deducted at source (TDS)," he added.

Deduct TDS if your landlord is an NRI

If your landlord is a non-resident Indian (NRI), you have to deduct tax at source. This requirement comes into play regardless of rent amount. You have to apply for a Tax Deduction Account Number (TAN) in order to deduct tax and the TDS must be deposited with the government within 7 days of the end of each month. You will also have to file quarterly TDS returns and issue the TDS certificates to your landlord. For doing all this, you will need to get the PAN of the landlord.

Deduct TDS if the total rent exceeds 50,000 per month

If the total rent for your flat exceeds 50,000 per month, you have to deduct TDS at 5%, even if your landlord is a resident Indian. The same requirements of getting a TAN, paying the tax deducted into the government account, and filing TDS returns will apply here too. Some experts say you can deduct the TDS under this section in one go in the last month of tenancy instead of deducting TDS each month.

 

ABOUT THE AUTHOR
Neil Borate
Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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