Income Tax Department Alerts on TDS Non-Deduction for Rent Payments Over ₹50,000 – What Taxpayers Must Know

Income Tax Department Alerts on TDS Non-Deduction for Rent Payments Over ₹50,000 – What Taxpayers Must Know 

The Income Tax Department has initiated a campaign to alert taxpayers about the non-deduction of tax on rent payments, particularly focusing on individuals who have claimed deductions under Section 10(13A) in their Income Tax Returns (ITRs) for assessment years 2022-23 to 2024-25. Taxpayers receiving such notifications are advised to verify their claims and rectify any discrepancies by filing an updated ITR by March 31, 2025.

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Understanding Section 194IB of the Income Tax Act:

• Applicability: Section 194IB mandates that individuals or Hindu Undivided Families (HUFs) paying monthly rent exceeding ₹50,000 must deduct Tax Deducted at Source (TDS) at a rate of 2%. This rate was reduced from 5% effective October 1, 2024.
• Timing of Deduction: The TDS should be deducted when crediting rent for the last month of the financial year or the last month of tenancy if the property is vacated mid-year. For instance, if the property is rented throughout the year, the deduction should occur in March, with the tax payable by April 30.
• Payment Methods: Rent payments can be made via cash, cheque, draft, or other modes.

TAN and PAN Requirements:

• TAN Exemption: Typically, tax deductors must obtain a Tax Deduction and Collection Account Number (TAN). However, Section 194IB exempts individuals from this requirement, allowing tenants paying rent over ₹50,000 per month to deduct TDS without a TAN.
• PAN Requirement: If the landlord does not provide their Permanent Account Number (PAN), TDS must be deducted at a higher rate of 20%. Nonetheless, under Section 194IB, the TDS amount cannot exceed the rent payable for the last month of the financial year or tenancy, ensuring tenants are not required to deduct more than the rent amount, even without the landlord's PAN.

Definition of 'Rent':

The term encompasses payments under any lease, sub-lease, tenancy, or similar arrangements for the use of land, buildings, or both.

Consequences of Non-Compliance:

Failing to adhere to Section 194IB can result in:

• Liability to Deduct and Pay Tax: The individual must deduct and remit the due tax.
• Interest Charges: Interest at 1% per month (or part thereof) on the amount not deducted, and 1.5% per month (or part thereof) on the amount deducted but not paid.
• Assessee in Default: The individual may be deemed an assessee in default under Section 201(1A).
• Penalties: A penalty equal to the amount of tax not deducted may be imposed.

Mitigation Measures:

If the landlord has:

• Filed their income tax return under Section 139,
• Included the rental income in their return, and
• Paid the tax due on this income,

then the tenant may not be considered an assessee in default.

Recommendations for Taxpayers:

• Review Rent Payments: Ensure compliance with TDS obligations if monthly rent exceeds ₹50,000.
• Maintain Documentation: Keep records of rent agreements, payment receipts, and correspondence with landlords.
• Consult Professionals: Seek advice from tax professionals to ensure adherence to tax laws and avoid potential penalties.

By proactively addressing these aspects, taxpayers can ensure compliance with tax regulations and avoid the repercussions associated with non-deduction of TDS on rent.

Read More: Set off losses and carry forward provisions in income tax 1961