The amendment of the Income Tax (IT) Act to introduce section 194-IB by the Finance Act, 2017 has put the onus of Tax Deducted at Source (TDS) on tenants paying rents above Rs 50,000. With effect from June 1, tenants paying monthly rents over Rs 50,000 will have to deduct tax at source at the rate of five percent. Further, if the landlord doesn’t have a Permanent Account Number (PAN), a higher tax of 20 percent is to be deducted by the tenant.
With rents in metro cities surging sky high, a large number of tenants are likely to come under the ambit of this new rule. This amendment makes tenants responsible for withholding TDS, depositing the same with the government, and filing the relevant documentation.
However, to ease the burden on tenants, the authorities have made compliance formalities easier for individuals who are tenants. Such individuals are not required to obtain a Tax Deduction Account Number (TAN). Further, the tax deduction can be done once a year. Experts state that the tax is required to be deducted at the time of credit or payment of the rent (whichever is earlier), in the last month of the financial year, or the last month of tenancy if the property is to be vacated in the middle of the year.
However, experts anticipate that landlords will try to evade this rule by revising rental agreements to charge a lower rent and collect the remaining amount as other charges, such as furniture hire. This could catch the attention of income tax authorities and, thus, is not advisable.