The Finance Minister while presenting budget for the year 2017-18 inserted a new provision i.e. section 194IB under The Income-tax Act,1961, (The Act) to provide for Tax Deduction at Source (TDS) at the rate of 5 percent by an individual or HUF, other than those whose books of account are required to be audited, while making payment of rent* of an amount exceeding Rs.50,000 per month. This section came into force w.e.f. from 01 June 2017.
While it was understandable that the intention of the government was to widen tax base however, most of them were concerned about how the process will work.
As promised government did come up with simplified process. Below are some of the pertinent point which an individual or HUF needs to look at while making rental payment over and above Rs. 50,000 per month:
1) Usually Tax Account Number (TAN) is required by the deductor (tenant) to deposit taxes however, considering the due hardship that could have been faced by Individual and HUF government has relaxed the requirement of TAN.
2) TDS needs to be deducted only once in a financial year i.e.
a) To be deducted at the time of credit of the rent to the account of landlord during the last month of the financial year.
b) Last month of the tenancy if the property is vacated during the financial year
c) At the time of payment whichever is earlier.
For Example: Ritika is paying a rent of Rs.60,000 per month. Now as per new provisions he will pay Rs.60,000 per month but while making the payment of the rent for March 2018 she is required to deduct TDS at 5 percent on total rent paid in the given financial year. Therefore, TDS works out to be 5 percent of Rs.60,000 *12 i.e. Rs.36,000. In the last month, Ritika can pay the landlord Rs. 60,000 – Rs. 36,000 = Rs. 24,000 and in case she vacates the house in month of December then she is required to deduct TDS at 5 percent while making the payment for the month of December.
3) A new Form 26 QC is made available to deposit the taxes wherein deductor has to mention Permanent Account Number (PAN) number of the landlord alongwith basic details viz, address, period of tenancy, value of rent payable, value paid in last month etc.
4) Payment of taxes can be paid either online or it can be paid by visiting bank branches.
5) If TDS payment is not made within 30 days from the end of the month in which the deduction was made then, the tenant may be required to pay a penalty equal to amount of taxes not withheld. Further, if the tenant delays in deposit of taxes withheld, he may be liable to pay penal interest at the rate of 1% where there is delay in deducting and depositing the tax or 1.5% per month where tax is deducted but there is delay in depositing the same.
6) In case there is any delay in filing of Form 26 QC then it may attract a late fee of Rs.200 per day.
7) Once the TDS payment is done a TDS certificate has to be issued by the deductor in respect of tax deducted and deposited as TDS on rent.
8) In case of joint landlord/tenant Form 26 QC is to be filed by each tenant for unique tenant-landlord combination for respective share. Example: In case of one tenant and two landlords, two forms have to be filed and for two tenants and two landlords, four forms have to be filed for respective rent share.
However, if one reads the section 194 IB of the Act, proviso specifically covers only residents receiving rent. It does not cover a case wherein rent is paid to non-resident. Hence, at the time of making payment residential status of the landlord needs to be ascertained for each financial year. Considering a scenario, wherein landlord is a non-resident Indian then tenant will have to apply for TAN and file TDS return on quarterly basis can be a cumbersome process which may not be the intent of the government as well. Hence, a clarification from government on this issue will certainly help.
*For the purpose of this section “rent” means any payment by whatever name called, under any lease, sub lease, tenancy or any other agreement or arrangement for the use of any land or building or both