If you live in a rented house in a city and pay a good amount of rent every month, then this news is very important for you. Many people pay rent regularly, but are not aware of the tax rules related to it. In such a situation, even small carelessness can prove costly. According to the rules of the Income Tax Department, if you pay more than Rs 50,000 as rent every month and do not complete the necessary tax procedures, you may have to pay a heavy fine. This rule has been implemented under the Income Tax Act 1961, the purpose of which is to ensure proper compliance with tax rules.
What is the rule of Section 194-IB?
Under Section 194-IB of the Income Tax Act, if an individual or Hindu Undivided Family (HUF) pays more than Rs 50,000 as rent every month, he will have to deduct TDS before making the payment to the landlord. This means that the tenant has to deduct a fixed percentage of tax from the rent amount and deposit it with the government and the remaining amount is given to the landlord. This process is entirely the responsibility of the tenant.
When and how to deposit TDS?
TDS is usually deducted in the last month of the financial year or when the tenant leaves the house. After this, this amount has to be deposited in the government account within 30 days of the end of the month in which TDS has been deducted. For example, if TDS is deducted in March, it is required to be deposited by the end of April.
What is the rate of TDS?
The government had changed this rule in the General Budget 2024. Earlier the TDS rate under section 194-IB was 5 percent, but now it has been reduced to 2 percent. This new rate is applicable from 1 October 2024. However, if the landlord does not have a PAN card, the TDS rate can increase up to 20 percent.
What will happen if the rules are not followed?
If the tenant does not follow this rule, the Income Tax Department can impose penalty on him. Apart from this, interest may also have to be paid on the outstanding tax and the tenant may be declared a “defaulter”. In some cases the fine can reach up to Rs 1 lakh.
Why was this rule implemented?
The government implemented this rule so that the rental income can be properly brought into the tax system. Earlier, in many cases, tenants used to claim HRA, but landlords did not show that income in their tax returns. This provision was implemented to prevent this disturbance.
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