TDS legal responsibility of a tenant & penalty for hire default

Tax associated liabilities on hire should not restricted to landlords. Income tax (I-T) legal guidelines mandate tax deduction at supply (TDS) by tenants (relevant to people and Hindu undivided households, or HUFs) and deposit it with the I-T division beneath sure circumstances. The quantity of TDS to be deducted and the circumstances pertaining to this are largely outlined beneath two sections:

Section 194I: It is relevant to people and HUFs whose turnover from enterprise or career exceeds ₹1 crore (in case of enterprise) or ₹50 lakh (in case of career) throughout the earlier monetary 12 months and when the owner is an Indian resident. The threshold restrict for TDS on this case is ₹2.4 lakh each year. The price at which TDS is required to be deducted is 10%.

Section 194IB: It is relevant to people and HUFs who should not coated beneath part 194I and when the owner is resident. The threshold restrict right here supplied is ₹50,000 monthly. The price at which TDS is required to be deducted is 5%. TDS shall be deducted within the final month of the earlier 12 months or the final month of tenancy (in case the property is vacated throughout the 12 months), whichever is earlier.

In instances the place the hire is paid to a non-resident, 30% TDS is to be mandatorily deducted beneath part 195 with none threshold guidelines on how a lot hire is paid and the earnings of the tenant.

TDS provisions on safety deposit

The provision of TDS is relevant solely on the quantity of hire paid; due to this fact, it isn’t relevant on the refundable safety deposit quantity {that a} tenant pays in lump sum to the owner. However, TDS provisions will likely be relevant in case of non-refundable deposits that are within the nature of hire. When the rented property has co-owners, a separate threshold restrict is relevant to every co-owner. For occasion, if an assessee is required to deduct TDS beneath part 194I; and the whole hire is ₹4 lakh to be paid to 2 co-owners, then separate limits of ₹2.4 lakh will likely be out there for every of the co-owners.

Let’s perceive this with an instance: A is a person engaged in enterprise and his turnover within the earlier monetary 12 months is greater than ₹1 crore. He is paying hire to B and C who’re co-owners of the residential property the place he stays. The hire paid to B is ₹18,000 monthly and that paid to C is ₹15,000/- monthly. The mentioned hire is paid in money by A.

In this case, part 194I is relevant as A is engaged in enterprise and his turnover within the earlier monetary 12 months is greater than ₹1 crore.

TDS will likely be deducted at 10% if the hire exceeds the brink of ₹2.4 lakh per co-owner per 12 months; which isn’t occurring on this case (hire paid to B is ₹2.16 lakh and to C is ₹1.8 lakh). Therefore, TDS is not going to be relevant on this case.

As for the taxability for B and C, the hire obtained will likely be taxed beneath the top ‘income from house property’. However, B isn’t entitled to obtain hire in money as the quantity exceeds ₹2 lakh, which is in violation of part 269ST of I-TAct, 1961, and penalty beneath part 271DA could be levied, which is the same as the quantity of receipt.

Penalty for not deducting TDS

An individual who fails to deduct TDS will likely be liable to pay curiosity on a month-to-month foundation at 1% (In case TDS isn’t deducted or paid) or 1.5% (in case TDS is deducted however not paid). The late charges for not filling TDS return is ₹200 per day.

In case the place the tenant fails to file the assertion of TDS throughout the due date, penalty starting from ₹10,000 to ₹1 lakh could be levied beneath part 271H.

Jigar Mansatta is proprietor, Jigar Mansatta & Associates.

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