Income Tax: Do you live on rent and get tax exemption? Then be careful! If your rent is more than Rs 50,000 and you have not paid TDS, then a notice from the Income Tax Department can reach your home. This rule is not to trouble the common man, but to make him aware. The government says that it is your responsibility to deduct tax from the rent and deposit it, otherwise you will have to pay penalty and interest. This small precaution can save you from a big hassle.
Living on rent is a common thing these days, but did you know that if you are paying rent of more than Rs 50,000 per month, then you have to bear the tax liability? If you claim exemption for House Rent Allowance (HRA) in your tax return but do not deduct TDS (Tax Deducted at Source), then the Income Tax Department may take notice of you. And after that, you know how much trouble can happen.
What is TDS and when is it applicable?
Section 194-I of the Income Tax Act states that if you pay rent of more than Rs 50,000 per month to an Indian landlord, you must deduct 2 per cent tax from the rent. Earlier this rate was 5%. From October last year, it was reduced to 2%. The interesting thing is that if the rent for even one month in a year exceeds Rs 50,000, then also TDS is applicable. TDS means that you deduct tax from the rent and deposit it to the government, so that tax evasion cannot take place.
Landlord’s PAN is necessary
It is very important to have the landlord’s PAN number while deducting tax. It has to be written in the TDS challan. If the PAN number is wrong or not active, then under section 206AA, the tax rate becomes 20 percent instead of 2 percent. And if the landlord is an NRI (Non-Resident Indian), then the tax rate is 30%. In such a situation, it is better not to make any mistake.
When to deposit TDS?
Now the question is when to deposit this tax? If you leave the house in the middle of the year, then TDS has to be deposited within 7 days of the end of the month. But if you stay on rent for the whole year, then this work has to be done within 30 days of the end of the financial year (31st March). That means, it is your responsibility to keep track of the time.
To deposit TDS, you have to fill Form 26QC, which is available on the Income Tax e-filing website. This is a simple form in which the rent and tax details have to be entered. After this, you have to give Form 16C to the landlord, which is required within 15 days of depositing the TDS. This form tells the landlord that you have deducted and deposited the tax for him.
Penalty if you break the rules
If you do not deduct TDS, you will have to pay 1 percent interest every month. Suppose you deducted tax, but delayed depositing it, then 1.5 percent interest will be charged per month. Not only this, a penalty of Rs 200 per day (Section 234E) can also be imposed for late submission of Form 26QC.