Section 194-IB have inserted in the Income Tax Act, by the Finance Act, 2017, widening the scope of TDS by giving the responsibilty of Tax deduction to individuals also who pay a rent over Rs. 50,000 from June 1, 2017.
The rent paid by the individuals in metro cities are higher and therefore there will be more tenants falling under the category of TDS deductors as they pay the rent in excess of Rs. 50,000/-. But there is a good news also for the individual tax deductors as well that the compliance formalities for the individual deductors have been made simpler.
The Central Board of Direct Taxes issued a notification regarding the compliance requirements under the said section on June 8.
Some Frequently Asked Questions (FAQS) about the new compliance has been stated below;
1. Can we revise the existing rent agreement?
Ans.
Revising the Rent agreement mid-way before the expiry of the tenancy period would not be a good idea according to the experts. Some people may think of revising their rent agreements in order to escape from the TDS deduction obligation. For example Mr. Ram is staying in a 3BHK apartment in Gurgaon on a monthly rental of Rs. 55,000/- now after the impose of TDS deduction oblication on the tenant part the landlady of Mr. Ram may ask him to revise the rent agreement and state the amount of rent to be Rs.40,000/- and Rs. 15,000 as furniture and other amenties rent to avoid the TDS obligation.
The action wouldnt be considered as a good option as the mid-way revision of the rent agreement may attract the attention of the tax authorities.The idea can be considered for implementation only if the assessee is entering into a fresh agreement.
According to the tax experts, the above mentioned idea is merely an attempt to escape from the tax liability and hence not advisable. Further the implementation of above idea would attract a number of pitfalls will be involved such as the amount paid against furniture hire must be equitable and justifiable according to the furniture physically available in the premises so rented. The other thing which need to be considered is that the list of the assets must be mentioned in the rent agreement for which the hire amount is to be paid. The tax authorities will take strong action against those tenants who have made such arrangements and paid the rent amount without deducting TDS.
Further more the consequences of non-compliance with the above mentioned provisions will include 1% p.m interest on tax not deduction and 1.5% p.m interest on tax not paid, further 200/day penalty will be imposed on non-filers of TDS returns.
2. Does TDS to be deducted monthly?
Ans.
No, some compliance related concessions have been given to the individual tds deductors. The individual does not need to deduct the tax on monthly basis, he is allowed to deduct the tax in the last month of the financial year of in the last month of the tenancy period if he is required to vacate the rented premises in the mid of the financial year.Hence, individual tds deductors would not require to maintain their books of accounts on account of tds deduction.
3. What will be the rate of TDS?
Ans.
The rate of TDS for individual tds deductors will be 5%. But if the land owner doesn’t have a permanent account number, tds will required to be deducted at a higher rate of 20%. But in such cases the amount of TDS must not axceed the amount of rent paid in the last month of the financial year or in the last month of the tenancy period whichever is applicable.
4. What will be the due date for payment of TDS deducted?
Ans.
The individual tax deductor is required to pay the tax so deducted to the government within a period of 30 days from the end of the month in which the TDS was deducted.
5. Does section 194 -IB also applies to non-resident land lords.
Ans.
No, It may be noted that if the land lord is a non resident to whom the rent is being paid in excess of Rs. 50,000/- in that case section 194-IB will not apply, the tax in that case must be deducted in accordance with section 195.