Budget 2017 and Budget 2019 have brought in certain amendments to the applicability of TDS on Rent and the rates at which TDS on Rent is to be deducted. Prior to this amendment, TDS was required to be deducted by a only a specified category of businesses and professionals. However, now even specified categories of salaried employees are required to deduct TDS on Rent.

The following is a brief overview of the TDS on Rent which is required to be deducted by various categories of Taxpayers:-

  1. Category 1: Professionals and Business falling under scope of Section 44AB

TDS @ 10% is required to be deducted in case the Rent paid/ payable during the Financial Year is more than Rs. 2.4 Lakhs. TDS on Rent in this case is required to be deducted under Section 194I @ 10% of the total amount paid or payable during the year. Earlier, TDS on Rent was required to be deducted if the Rent paid was more than Rs. 1.8 Lakhs but w.e.f Financial Year 2019-20, this limit has been increased to Rs. 2.4 Lakhs per annum.

Moreover, only those categories of businesses /professionals are required to deduct TDS who are required to get their tax audit conducted by a CA under Section 44AB.

Businesses and Professionals who are not required to get their Tax Audit conducted are not required to deduct any TDS on Rent irrespective of the amount of payment made during the year.

  1. Category 2: Other type of Tenants i.e. Salaried and those not falling in above category

If you are not falling in Category 1, then you were earlier exempted from deduction of any TDS on Rent. However, with effect from 1st June 2017 – tenants who were not falling in the above category are also required to deduct TDS if the Rent paid is more than Rs. 50,000 pm.

The following is the category of taxpayers who don’t fall in the above category:-

  1. All type of Salaried taxpayers
  2. Businesses and Professionals not falling under Scope of Section 44AB

TDS in this case is required to be deducted under Section 194IB @ 5% of the total rent paid or payable.

The provisions applicable on both these categories of taxpayers are mentioned in below.

Section 194I: TDS on Rent in case of Businesses and Professionals required to get Tax Audit conducted

TDS on Rent is liable to be deducted by the person making the payment if the total amount to be paid during the year exceeds Rs. 2,40,000 p.a. This limit of Rs. 2,40,000 p.a. is per taxpayer per annum. So in case, there are 2 co-owners of an asset, this limit would apply for each co-owner i.e. TDS on Rent is liable to be deducted if payment to each co-owner exceeds Rs. 2,40,000 p.a.

Different Rates of deducting tax at source have been prescribed for different types of Assets under Section 194I of the Income Tax Act which have been disclosed herewith

Exception to the above Rule – No TDS on Rent is liable to be deducted if the Payment is being made by an Individual or HUF who is not required to get his Tax Audit done under Section 44AB i.e. the business turnover of the person is less than 50 Lakhs/ 1 Crore. (Recommended Read: Categories of Taxpayers who are required to get Tax Audit u/s 44AB)

Section 194IB: TDS on Rent paid by other Category of Taxpayers

Earlier TDS on Rent was required to be deducted only in case the person making the payment is required to get his Tax Audit conducted by a CA under Section 44AB. As a result of this, many type of tenants were not required to deduct TDS on Rent.

However, an amendment has now been introduced to widen the scope of the applicability of the provisions of TDS on Rent. With effect from 1st June 2017, if an Individual or HUF is paying rent of more than Rs. 50,000 per month and is not falling in the above category – such person would also be required to deduct TDS @ 5% under Section 194IB.

In order to reduce the burden of compliance, this TDS is not required to be deducted every month and is required to be deducted only once in a financial year.

The total TDS required to be deducted for the whole financial year is required to be deducted in the last month of the financial year only. In case the tenant vacates the property during the year itself – then in such cases TDS @ 5% is required to be deducted in the last month of tenancy.

Moreover, in order to simplify the process and to reduce the burden of compliances, the tenant shall not be required to obtain TAN No.

TDS exclusive of GST

GST @ 18% is liable to be paid if the total amount received by your landlord from 1 or more sources during the year exceeds Rs. 20 Lakh (irrespective of whether received as Rent or for providing any other service)

Thus, if you are making a payment of Rs. 50 Lakh, you would also be liable to pay GST of Rs. 9,00,000 and therefore the total outflow from your pocket would be Rs. 59,00,000.

Therefore in the above scenario, the Tax on Rent would only be on the Actual Rent paid and the computation has been shown below

Rent50,00,000
(Add)GST @ 18%9,00,000
(Less)TDS on Rent @ 10% on amount excluding GST(5,00,000)

It is important to note here that GST is not levied on renting of residential properties but is levied on all properties other than residential properties.

Lower/ Nil Deduction of TDS on Rent

The TDS deducted on Rent can be claimed as credit at the time of filing of income tax return and the receiver would only be required to pay the difference in the tax that was actually payable (computed as per the Income Tax Slab Rates) and the TDS on Rent that has been deducted.

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However, if the income tax computed as per the slab rates is less than the TDS deducted, the receiver of rent can request for TDS Refund for the excess TDS deducted.

Form 15G for request for Nil/Lower Deduction of TDS on Rent

TDS @ 10% is required to be deducted if the Total Rent to be paid exceeds Rs. 1,80,000. Although the threshold for deduction of TDS on Rent has been kept at a higher limit as compared to other limits, there would still be cases wherein Nil Tax is applicable on the person receiving the Rent.

In order to reduce the compliance burden, the Budget 2016 has introduced an amendment stating that if Nil Tax is applicable on the Income of the person receiving the Rent (incl Rental Income), the recipient of such payment can file Form 15G/Form 15H for Non-Deduction of TDS.

TDS on Advance Rent

In cases where Advance Rent is being paid by the tenant to the landlord, TDS on Advance Rent is also liable to be deducted. However, the income tax department vie Circular No. 5/2001 dated 2-3-2001 has notified that in cases where

  1. The advance rent is spread over more than 1 financial year, credit of TDS on Rent shall be allowed in the same proportion in which such income is offered for tax based on the single tax credit certificate issued (i.e. Form 16A) for the entire advance rent, or
  2. The asset is sold/transferred by one person to another, credit for the tds on rent which has not been availed till the date of sale/transfer shall be allowed to the new owner.
Moreover, in some cases advance rent is paid and TDS on Rent is also deducted but later the rent agreement gets cancelled resulting in refund of balance amount to the tenant. In such cases, it has been clarified by the CBDT that the landlord in such cases shall state in his ITR Form that TDS Deducted has not been claimed because of cancellation of rent agreement.

Important Points regarding TDS on Rent

  1. The Receiver of Rent shall intimate his PAN Card No. to the Party from whom he is receiving the Payment. If the PAN Card No. has not been intimated, TDS on Rent shall be liable to be deducted @ 20% under Section 206AA
  2. Surcharge is not applicable on TDS on Rent except where payment is made to a foreign company and the amount exceeds Rs. 1 Crore, the Surcharge levied thereon as per the rates in force.
  3. No Education Cess or Secondary and Higher Education Cess is to be additionally charged on TDS on Rent.
  4. If a non-refundable security deposit is being made by the tenant, TDS would also be liable to be deducted on such non-refundable deposit because such deposit represents the consideration for the use of the asset. However, if the deposit is refundable, no TDS would be deducted on such deposit.
  5. If the municipal taxes, ground rent etc are borne by the tenant, no tax would be deducted on such amount.
  6. Where payments are made for hotel accommodation taken on regular basis, TDS on Rent payment shall be deducted.

The Rent received would be taxed under head House Property and various deductions would also be allowed from the rental income earned.

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