TDS on Rent - New Section 194IB of Income Tax Act

As part of budget 2017, there was a announcement about TDS on rent which remain relatively unnoticed by lot of people. Please note that TDS on rent is only applicable for people showing more than Rs 50000 per month as rent for saving tax. Lately there has been lot of cases where either people submit fake rent receipts to save tax and this act is supposed to stop these practices.

Here are the relevant portion from the budget:

It is proposed to introduce a new provision in the Income-tax Act to provide for tax deduction at source at the rate of five per cent by an individual or HUF, other than those whose books of account are required to be audited, while making payment of rent of an amount exceeding Rs. 50000 per month. It is also proposed to provide that such tax shall be deducted and deposited only once in a financial year through a challan-cum-statement. Further, the deductor shall not be required to obtain TAN or file any separate TDS return for this purpose.

Income Tax section 194IB - TDS on Rent

Section 194IB of income tax act introduces the concept of TDS on rent paid by individuals (and HUFs) wherever the rent is more than Rs 50000 a month or more.

Here are the main points of income tax section 194IB:

1. Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.

2. This income tax need to be deducted at the time of credit of rent for the last month of financial year or last month of tenancy (if the property is vacated during the year). To make it simpler, the total tax deduction amount for the year can not exceed the last month rent.