Income Tax Update: Are you living in a rented house and claiming tax benefits under HRA? If yes, then you need to be extra careful! If your monthly rent exceeds ₹50,000 and you haven't deducted TDS (Tax Deducted at Source), you could receive a notice from the Income Tax Department. This rule isn't meant to trouble taxpayers but to make them more aware of their tax responsibilities. Failing to comply could lead to penalties and interest charges.
In today’s times, living in rented accommodation is common, especially in urban areas. However, many are unaware that if the monthly rent crosses ₹50,000, they must deduct 2% TDS before paying rent to the landlord. If you claim House Rent Allowance (HRA) benefits in your income tax returns but fail to deduct TDS, you could face serious trouble including notices from the Income Tax Department.
Under Section 194-IB of the Income Tax Act, if a tenant pays more than ₹50,000 as monthly rent to a resident landlord, they must deduct 2% TDS before making the payment. Earlier, the deduction rate was 5%, but from October last year, it has been reduced to 2%.
Even if your rent exceeds ₹50,000 for just one month in a financial year, the TDS requirement still applies. The idea is to ensure transparency and prevent tax evasion.
While deducting TDS, it is mandatory to collect the PAN number of your landlord. This PAN must be correctly mentioned while filling the TDS form. If the PAN is incorrect or inactive, under Section 206AA, the TDS rate increases drastically from 2% to 20%.
In cases where the landlord is a Non-Resident Indian (NRI), the TDS rate jumps to 30%. Therefore, it’s crucial to handle this responsibility carefully.
TDS must be deposited timely to avoid penalties:
If you vacate the rented house mid-year, you must deposit TDS within 7 days from the end of the month in which the rent was paid.
If you stay throughout the financial year, then TDS must be deposited within 30 days after the end of the financial year (i.e., by April 30).
For this, you need to fill Form 26QC available on the Income Tax e-filing portal. After depositing TDS, you must provide Form 16C to the landlord within 15 days, indicating the amount deducted and paid to the government.
If you fail to deduct TDS:
You will have to pay 1% interest per month on the unpaid amount.
If you deducted TDS but deposited it late, an interest of 1.5% per month will apply.
Delay in submitting Form 26QC can attract a penalty of ₹200 per day under Section 234E until the form is filed.
To avoid unnecessary notices, penalties, and interest charges, tenants paying rent above ₹50,000 must take the responsibility of deducting and depositing TDS seriously. A little attention to this process can save you from bigger financial headaches later.
Stay aware, stay compliant!
