5% TDS on Rent if you pay Rent Over rs 50000 per month under section (194-IB)
From 1st June onwards, those who pay rent above Rs. 50,000 per month as tax will have to pay a 5% TDS. This comes at a time when the Income Tax department is strict about realty transactions. From the past few years, the IT department is tightening the regulations for this sector. However, no one saw this coming. To ensure that black money is not circulated or transformed in any manner from this sector, the TDS margins have been fixed.
What you can do?
- Revising your rent agreement is a strict no-no: Right now revising the agreements you made with your landlord is not a good idea at all. It is possible that after learning about this news, your landlord or landlady will want to revise the lease agreement. It is possible that you have been staying at your place for several months in the past and out of the blue they propose this.
Mostly what happens is that the landlord or the landlady suddenly asks to split payment for furniture hire. Even a minute change such as this is bound to raise suspicion. This can put you under more hassle from the authority.
- Justify the arrangement: In the past just before TDS regulations changed, people shifted or changed their agreements to escape the regulations. This time doing this will put an eye on your back. The authorities are very strict about shifting files. This also includes charging unnecessarily high for things that are not supposed to cost so high.
If such furniture is rented, they should be mentioned clearly. Secondly, the right amount should be charged for them. There are many instances where people have shown lump sum charges for furniture. Doing this would surely put you under scrutiny. If the rent for the flat is Rs. 40,000 – It would definitely put you under question if the rent of the furniture itself is Rs. 45,000.
- Draw to separate agreements instead: But make sure that the second agreement is not recently made or once again you will come under the radar. If you are getting furniture for hire as well as the house, then you can opt for two separate agreements. It is better if newbies who are going to live under rent are taking up the same.
- If there are multiple tenants living under the same roof and altogether they pay Rs. 50,000 or more as rent, then they don’t have to follow the TDS norms mentioned. But the landlord has to make sure that the names of all the tenants are included in the agreement. If not, it will raise further questions.
- However, if many tenants are staying under the same roof but only of the tenants pay the rent, then TDS will be applicable. This happens when only one tenant pays the rent and all others pay that single person.
- CBDT has given some relief to those students and employees who are staying under the same roof in different cities. This will help ease the burden on the newly employed individuals or students.
- The rest of the regulations and norms remain the same. Just like while buying a property a 1% TDS is cut, you (the tenant) have to cut a 5% TDS under Section 194-IB. You have to deposit it within a month.
- If the tenant fails to produce the TDS to the authorities, there is a fair chance that the landlord will also have to pay the penalty with interest. The rate of interest for a penalty like this is fixed at 1 to 1.5 per cent per month. It shall be borne by both the landlord and the tenant.
- The method of payment of TDS has been simplified now. All you have to do is take the 26QC forms from the RBI authorized banks and submit them. You will need PAN number of the landlord to complete the process.
- If the PAN of the landlord is not available, then 20% tax shall be deducted instead of 5%. After that the tenant also has to issue a Form 16C file to the landlord within 15 days. This type of form is just like the Form 16C of the salaried people.
- It is the tenant who will pay the TDS. This is why the landlord has to disclose to him how much he is making as rental income. But if he doesn’t disclose that and if somehow the tenant does not pay the TDS, it will be the landlord who will have to pay the penalty.
- On the other hand if TDS is deducted, then the landlord can take the credit for the fund and file for a refund. Hence it becomes easier for the landlord to keep a track of the credit.
The rental prices in the metro cities are sky high. Therefore a lot of people will fall under these new criteria since the amount is now heightened to Rs. 50,000 and above. Also, the rules are modified, this means that a lot of people who were previously not paying TDS will come under this rule.
Also, it is easier to clear your remittances now. You can also pay the government via electronic methods. Use the 26QC form to submit this document at any authorized bank. The main idea behind making the norms easier is that the users don’t declare fake HRAs to take more money. This in turn creates a lot of black money floating in the realty sector. This hurts the sector as well as the government expenditure. To curb this, from now on the landlord will have to hold a thorough document entailing the different aspects of the agreement.