Why Mr. Ashu should pay Rs 72,200/- and Mr. Gururaj Rs 26,400/- in spite of TDS compliance?

Navigating the provisions of tax deduction at source (TDS) for rent payments is crucial; understand from the example of Mr. Ashu and Gururaj-

• Mr. Ashu is staying in a rented house owned by Mr. Suresh, a resident of Canada. He made TDS on rent payments on a monthly basis at the tax rate applicable to non-residents (tax: 30% + 4% cess on tax). He also deposited the TDS in “e-pay” mode in due time. As he was not aware of the requirement of filing quarterly TDS statements, he failed to file the said statements for the June, September and December 2023 quarters in time. He finally filed the statements for these 3 quarters on February 29, 2024. He was shocked to know that he has to pay late filing fee of Rs 72,200/- 

• Mr. Gururaj was staying in a rented house owned by Mr. Raj (a resident) for the period from April 1, 2023, to January 1, 2024. He was paying a monthly rent of Rs 55,000 to Mr. Raj. Based on the PAN given by Raj, he made TDS 28,600 (including Cess) from the payment of rent for January 24. At the time of depositing the TDS amount, Gururaj approached his tax advisor and was shocked to learn that he had to pay an additional Rs 26,400/- from his pocket.

Whether you receive a House Rent Allowance (HRA) or not, understanding TDS regulations is paramount if you are staying in a rented house.

Let's delve into the essentials to ensure seamless compliance and avoid interest and penalties.

TDS : When and how much?

You are required to deduct income-tax at source (TDS), if:

•  you are paying rent to a resident landlord exceeding Rs. 50,000/- per month at a rate of 5%, if the landlord has given his operative permanent account number (PAN) to you; otherwise, the TDS is required to be made at higher rate of 20% but restricted to the rent of the lost month or tenancy as per provisions of section 194-IB
• you are paying rent to a non-resident landlord at the rate of 30%, irrespective of the amount of the monthly rent paid. The threshold of Rs 50,000/- is not applicable to the rent paid to a non-resident landlord, as the tax at source is required to be deducted under section-195.

The applicable cess and surcharge are required to be added while making TDS in both cases.

Timeline for making TDS

Where rent is to be paid to Resident landlord at the time of payment of rent for—

•  last month of the financial year, or 
•  the last month of tenancy, if the property has been vacated or sold during the year.

Where rent is to be paid to a Non-Resident, at the time of payment, if the payment of rent is made on a monthly basis, TDS has to be made on a monthly basis.

Requirement of TAN

Tax Deduction Account Number (TAN) is not required to be obtained if the rent is paid to the resident landlord. However, if the rent is to be paid to Non-Resident, obtaining TAN is necessary.

Timeline for payment of TDS

As per Rule 30 of the Income-tax Rules, tax deducted at source is required to be paid to the credit of the Central Government–

• Where the rent is paid to a Resident landlord:

Within 30 days from the end of the month in which the deduction is made,. The payment is to be made through a challan-cum-statement in Form No. 26QB.

• Where the rent is paid to a Non- Resident Landlord –

On or before the 30th day of April of the next financial year for the rent paid in the month of March and in respect of rent paid in other months of the financial year—on or before the 7th day of the succeeding month. The tax deducted has to be paid through a challan Form- ITNS 281.

Timeline for Filing TDS Statements

In the case of TDS made from the rent paid to a resident landlord, there is no separate requirement for filing any statement of TDS made, as the tax deducted at source has to be paid through a challan-cum-statement in Form No. 26QB. However, in the case of a Non-Resident landlord, quarterly statements are required to be furnished in Form 27Q (if dates are not extended) within the timeline given below :-

Consequences of TDS defaults

As per provisions of section 201, if you are required to deduct tax at source but failed to deduct or, after deducting, failed to pay the amount of tax deducted to the Government, then you will be required to pay an amount equal to the defaulted tax with simple interest on the defaulted tax.

• at the rate of one per cent for every month or part of a month from the date on which such tax was deductible to the date on which such tax is deducted; and 
• at the rate of one and half percent for every month or part of a month from the date on which such tax was deducted to the date on which it was actually paid.

For non-deduction of the whole or any part of the tax, you will also be liable to pay a penalty equal to the amount of tax (that you failed to deduct) under the provisions of Section 271C, in addition to any other consequences under the Income-tax Act 

Consequences of failure to file form-27Q

As per Section 234E, you may be liable to pay a fee at the rate of Rs 200/- per day for every day of delay in filing quarterly statements in Form- 27Q in respect of tax deductible payments made to Non-Resident landlords. 

Conclusion

Compliance with TDS for rent payments is essential to avoid interest, penalties and other legal complications. Familiarise yourself with these guidelines and meet your obligations on time to stay compliant with the law.

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[Disclaimer- The article is only for educational purposes. The relevant provisions of the Income-tax Act and relevant rules may be referred to for complete understanding.]