Navigating TDS Deductions on Rent Payments in India
When leasing property in India, it’s crucial to understand the Tax Deducted at Source (TDS) obligations to ensure compliance with the Income Tax Act, 1961. This blog will guide you through the responsibilities of the lessee (tenant) in different scenarios and delve into the applicable sections, key points, and penalties associated with non-compliance.
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TDS on Rent: When Shown as a Business Expense?
When the rent is treated as a business expense, Section 194-I of the Income Tax Act, 1961, comes into play. Here are the key points:
- Applicability: This section applies to any person (except individuals or HUFs not subject to audit under Section 44AB) responsible for paying rent.
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Threshold Limit: TDS must be deducted if the total rent paid or payable during the financial year exceeds ₹2,40,000.
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Rate of TDS: 10% on rent for the use of any land, building (including factory building), land appurtenant to a building (including factory building), or furniture or fittings.
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Time of Deduction: TDS must be deducted at the time of credit of rent to the account of the payee or at the time of payment thereof in cash, by cheque, draft, or by any other mode, whichever is earlier.
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TAN Requirement: The deductor must have a valid Tax Deduction Account Number (TAN).
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Deposit of TDS: The deducted TDS must be deposited to the government account by the 7th of the following month.
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TDS Certificate: The deductor must issue a TDS certificate (Form 16A) to the deductee.
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Penalty for Non-Deduction: Under Section 271C, a penalty equal to the TDS not deducted or not paid can be imposed.
TDS on Rent: When Not Shown as a Business Expense but Exceeds Rs. 50,000 per month
For individuals or HUFs not required to have their accounts audited under Section 44AB, who pay rent exceeding ₹50,000 per month, Section 194-IB applies. Here’s what you need to know:
- Applicability: This section targets individuals or HUFs not subjected to audit under Section 44AB.
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Threshold Limit: The provision applies if the monthly rent exceeds ₹50,000.
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Rate of TDS: TDS is deducted at the rate of 5%.
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Time of Deduction: TDS must be deducted once in the financial year, either at the time of crediting the rent for the last month of the financial year, the last month of the tenancy if the property is vacated during the year, or at the time of payment, whichever comes earlier.
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Deposit of TDS: The deducted TDS must be deposited using Form 26QC within 30 days from the end of the month in which the deduction is made.
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TDS Certificate: The deductor (Lessee) must issue a TDS certificate (Form 16C) to the deductee (Lessor).
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Penalty for Non-Deduction: Under Section 271C, a penalty equal to the TDS not deducted or not paid can be imposed.
Common Challenges in TDS Compliance
Despite understanding the basics of TDS deductions, there are common challenges that both lessees and lessors may face:
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Legal Complexities: The legal language and requirements involved in TDS deductions can be complex and difficult for non-legal professionals to understand.
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Incomplete or Inaccurate Documents: Incomplete or inaccurate property documents can lead to delays and complications in the TDS deduction process.
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Verification of Property Titles: Verifying the authenticity of property titles can be challenging, especially in cases where property records are not digitized or easily accessible.
How Agarwal Estates Simplifies TDS Compliance
At Agarwal Estates, we understand the prospects and complications present in Bangalore's thriving real estate industry. Our team of seasoned real estate agents is dedicated to providing our clients with the best possible service and knowledge. We take great pride in our broad network, in-depth understanding of the area, and constant commitment to client satisfaction.
Our differentiating aspects include:
- Trust & Transparency: We ensure that all transactions are conducted with the utmost honesty and clarity.
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ISO 9001:2017 Certified: Our processes and services are certified to meet international standards.
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ICF Certified Coaches: Our team includes certified coaches who provide expert guidance throughout the real estate process.
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Subject Matter Expertise: We have extensive knowledge and experience in the real estate sector.
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2,500+ Reviews from 50+ Countries: Our clients from around the globe vouch for our exceptional service and reliability.
By partnering with Agarwal Estates, you can navigate the complexities of TDS deductions and other real estate obligations with confidence. Our expertise and comprehensive support ensure a smooth and hassle-free experience. We have established a robust ecosystem that includes qualified tax professionals. These experts are available to assist you with specific tax-related matters in your real estate journey, ensuring that you receive accurate advice and maintain full compliance with the latest tax laws and regulations.
Please note that as tax laws change occasionally, it is advisable to consult with a tax advisor regularly to ensure compliance. Special thanks to CA Mukul Sringeri from Finominal Advisors for his valuable contributions to this blog. For more details, you can contact him at +919945397780 or mukul.sringeri@finominals.com .
For a seamless property transaction experience, consider Agarwal Estates. Our expertise and innovative solutions will guide you every step of the way, ensuring compliance and peace of mind.
