Paying Rent In Excess Of Rs.50,000 Every Month? Cut Tax At Source!
Individuals or Hindu Undivided Families who pay rent in excess of Rs.50,000 every month towards residential or commercial property are mandated to cut tax at source. In 2017, Section 194IB was introduced to the Income Tax Act, 1961, and under this section, tenants who pay rent above Rs.50,000 a month are mandated by the government to retain taxes at 5% on payments made towards rent. This amount should then be deposited by the prescribed deadline.
In the past, rental payments were withheld only by individuals and Hindu Undivided Families whose accounts were compulsorily required to be audited under the tax laws. But the introduction of Section 194IB will mean that every individual and Hindu Undivided Family that pays rent in excess of Rs.50,000 a month will be required to retain tax from June 1, 2017.
A number of people across the country are of the opinion that the addition of this process is likely to just make the current tax structure increasingly complex. But, on the bright side, the government is doing all it can to ensure that the process is as easy as it can get.
Deduction of Tax Once A Year
Tenants, under Section 194IB of the Income Tax Act, are required to cut taxes and deposit them just once per year. To do so, Form 26QC can be used as it works as a challan as well as a statement. In case the tenancy comes to an end over the course of a particular year, there will be no requirement to retain the tax for that year.
Forms, Challans, And TDS Certificates Are Easy To Access
Tenants who pay rent in excess of Rs.50,000 a month are mandated to issue Form 16C (a certificate for withholding tax) to their landlords. This form proves that the tenant has deposited the taxes. Form 16C and Form 26QC can be accessed on the NSDL platform online as well as the IT Department’s TRACES website. To download Form 26QC, visit www.tin-nsdl.com, and for Form 16C, visit www.tdscpc.gov.in.
No Requirement For TAN
TAN (Tax Deduction Account Number) is no longer required to be obtained for transactions like these. Lawmakers have made it simple for individuals in this sense, but there will be penalties and interests applicable to those who fail to comply with the rules under Section 194IB of the Income Tax Act, 1961. The main aim of the government, when introducing Section 194IB, is said to be its need to ensure that the landlord as well as the tenant disclose their income correctly. It is also to ensure that the landlord and the tenant file their IT returns with accurate data. Since the tenant and landlord are both expected to quote their PAN, it will be easier for the Revenue Department to track accurate disclosures related to rent in tax returns. Moreover, taxes like these may be reflected in Form 26AS for claiming TDS credit.
Requirement For PAN
Landlords are expected to provide their PAN details to their tenants. In case a landlord fails to provide his/her PAN details to the tenant, tax will be retained or deducted at 20%. But the maximum amount of tax in such a case will be limited to the rent that should be paid for the tenancy, or the final month of the fiscal year, whichever comes first.
Taxes will have to be retained/deducted just once a year, but in case a house on rent is vacated over the course of the year, the tax will have to be cut on the final day of said tenancy. The tax that is retained should be deposited within thirty days from the last day of the month in which it was deducted.
Tenants are expected to issue a Form 16C (TDS Certificate) to their landlords to prove that taxes were deducted. The form has to be issued to the landlord within 45 days from the last day of the month in which the deduction was made.
Penalties
In case tax is not deducted, the tenant might have to pay a fine which will be equivalent to the amount of taxes not retained. In case there has been a delay in depositing the taxes that were retained, the tenant could be required to make penal interest payments at 1% a month if the delay was in deducting the tax and depositing it, or 1.5% a month in case the tax has been deducted but deposited after a delay.
If a tenant delays filing Form 26QC, he/she may be liable to pay Rs.200 a day as late fees. Non-filing of Form 26QC could attract consequential penalties, and a delay in the issuance of Form 16C could attract a penalty of Rs.100 a day.
In the past, rental payments were withheld only by individuals and Hindu Undivided Families whose accounts were compulsorily required to be audited under the tax laws. But the introduction of Section 194IB will mean that every individual and Hindu Undivided Family that pays rent in excess of Rs.50,000 a month will be required to retain tax from June 1, 2017.
A number of people across the country are of the opinion that the addition of this process is likely to just make the current tax structure increasingly complex. But, on the bright side, the government is doing all it can to ensure that the process is as easy as it can get.
Deduction of Tax Once A Year
Tenants, under Section 194IB of the Income Tax Act, are required to cut taxes and deposit them just once per year. To do so, Form 26QC can be used as it works as a challan as well as a statement. In case the tenancy comes to an end over the course of a particular year, there will be no requirement to retain the tax for that year.
Forms, Challans, And TDS Certificates Are Easy To Access
Tenants who pay rent in excess of Rs.50,000 a month are mandated to issue Form 16C (a certificate for withholding tax) to their landlords. This form proves that the tenant has deposited the taxes. Form 16C and Form 26QC can be accessed on the NSDL platform online as well as the IT Department’s TRACES website. To download Form 26QC, visit www.tin-nsdl.com, and for Form 16C, visit www.tdscpc.gov.in.
No Requirement For TAN
TAN (Tax Deduction Account Number) is no longer required to be obtained for transactions like these. Lawmakers have made it simple for individuals in this sense, but there will be penalties and interests applicable to those who fail to comply with the rules under Section 194IB of the Income Tax Act, 1961. The main aim of the government, when introducing Section 194IB, is said to be its need to ensure that the landlord as well as the tenant disclose their income correctly. It is also to ensure that the landlord and the tenant file their IT returns with accurate data. Since the tenant and landlord are both expected to quote their PAN, it will be easier for the Revenue Department to track accurate disclosures related to rent in tax returns. Moreover, taxes like these may be reflected in Form 26AS for claiming TDS credit.
Requirement For PAN
Landlords are expected to provide their PAN details to their tenants. In case a landlord fails to provide his/her PAN details to the tenant, tax will be retained or deducted at 20%. But the maximum amount of tax in such a case will be limited to the rent that should be paid for the tenancy, or the final month of the fiscal year, whichever comes first.
Taxes will have to be retained/deducted just once a year, but in case a house on rent is vacated over the course of the year, the tax will have to be cut on the final day of said tenancy. The tax that is retained should be deposited within thirty days from the last day of the month in which it was deducted.
Tenants are expected to issue a Form 16C (TDS Certificate) to their landlords to prove that taxes were deducted. The form has to be issued to the landlord within 45 days from the last day of the month in which the deduction was made.
Penalties
In case tax is not deducted, the tenant might have to pay a fine which will be equivalent to the amount of taxes not retained. In case there has been a delay in depositing the taxes that were retained, the tenant could be required to make penal interest payments at 1% a month if the delay was in deducting the tax and depositing it, or 1.5% a month in case the tax has been deducted but deposited after a delay.
If a tenant delays filing Form 26QC, he/she may be liable to pay Rs.200 a day as late fees. Non-filing of Form 26QC could attract consequential penalties, and a delay in the issuance of Form 16C could attract a penalty of Rs.100 a day.