Applicability of TDS on rent payment exceeding Rs. 50,000/-

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Applicability of TDS on rent payment exceeding Rs. 50,000/-

TDS (Tax Deduction at Source) is a provision whereby the payer is required to deduct certain amount of tax & deposit the same to the Government treasury.

There is a general belief that TDS provision is not applicable to taxpayers who are not in to any business. This is not entirely true even though most of the TDS provisions are applicable to the business houses only. The scope of TDS is widening so as to cover all the categories of taxpayer. It has started with TDS on immoveable property wherein purchaser (which includes all categories of taxpayer) buying property above Rs. 50 Lakh are required to do TDS @1% of the sale consideration. By the Finance Act-2017, a new section 194IB has been introduced in the Income Tax Act-1961 whereby TDS is required to be done on rent payment also. Section 194IB provides that;

  1. Every individual and HUF paying rent more than Rs. 50,000/- per month (or part of a month) for the use of any land or building or both, need to do TDS @ 5%. If the PAN of recipient is not available then TDS is required @ 20% (limited to the rent of last month of the tenancy).
  2. TDS has to be done in the last month of the year or the last month of tenancy, if the property is vacated during the year, as the case may be.
  3. TDS so done has to be paid to the Government treasury within a period of 30 days from the end of the month in which deduction is done through a challan-cum-statement in Form No. 26QC.
  4. Deductor is duty bound to furnish TDS certificate (Form No.16C) to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No.26QC.
  5. “Rent” for the above purposes 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.
  6. Deductor is not required to obtain tax deduction account number (TAN) as per section 203A of the Act and the compliance has to be done using PAN of both the parties (i.e., Deductor & Deductee).

There is already a provision in the Income Tax Act-1961 in the form of section 194-I which provides for TDS on Rent @ 10% if it exceeds Rs. 1.80 Lakh p.a. Section 194-I is applicable to Companies, firms, etc and only to those individuals/HUF who are in to business with turnover above certain threshold.& not to all the categories of individuals/HUF.

Applicability of provision in day to day life:

A question arises as to whether tax deduction obligation arises while making rent payment for a lawn/land/building taken for one day/few days, say for a wedding, birthday or family programme of the family or for an exhibition or conferences etc or where a person stays in a hotel for a few days & aggregate room rent exceeds Rs. 50,000. Going by the strict interpretation of section 194IB, the TDS provision is triggered if rent, even for a part of a month, exceeds Rs. 50,000/-. Further, Apex court in Apeejay Surendra Park Hotels Ltd. V. Union of India [(383 ITR 697) &     AP High Court in case of Krishna Oberoi vs. UOI [[2002] 123 Taxman 709] has held that amount paid to the hotels for use & occupation of hotel rooms squarely falls within the meaning of “Rent”. The definition of “Rent” has wider connotation as it is applicable even in respect of rent for a “part of the month” and so TDS should be done if the payment exceeds Rs. 50,000/- in such cases.

What are the penalties for non-compliance?

There are penal consequences if taxpayer fails to comply with the TDS provision. Failure could be in the form of non deduction, delayed payment after deduction or non-payment after deduction.

  1. Implication of Non-deduction:
    Amount of TDS could also be recovered from the payer along with interest @ 1 % p.m. of such tax from the date on which such tax was deductible.
  2. Implication of Non-payment:
    Failure to pay the TDS amount timely to the Government treasury attracts interest @ 1.5% p.m. from the date on which such tax was deducted till the date on which such tax is actually paid.
  3. Fees for Late Filing of TDS Return:
    Under section 234E, a fee of ₹ 200 per day is leviable for late furnishing of TDS statement from the due date of furnishing of TDS statement to the date of furnishing of TDS statement, maximum up to amount of tax deductible.
  4. Penalty for failure to furnish TDS Return: 
    The penalty can be charged from Rs 10,000 to Rs. 1,00,000/-
  5. Imprisonment:
    Besides penalty and interest, defaulters can also face imprisonment for a term which shall not be less than 3 months but may extend to 7 years along with fine.
  6. Penalty for failure to issue TDS Certificate: 
    For delay in issuing Form 16C, the penalty is Rs 100 per day.

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