IKAN Report: Tax withholding on rent – personal leases in India

What do personal leaseholders and landlords in India need to know about their tax liabilities? IKAN Relocations explains the current rulings.

india's taxation on personal property leases explained
The Finance Act has always mandated that tax should be withheld at source on rents being paid to landlords. Historically leases were either personal leases signed between the individual tenant and the landlord, or between a company taking the property on rent for the tenancy of an executive and a landlord.In the past, in the case of company leases, the tax was withheld by the company at the rate of 10 per cent when dealing with landlords who were resident in India and 20 per cent where the landlord was non-resident in India. In the case of personal leases, this tax was usually never withheld and full rent was paid to the landlord.As per the Finance Act, 2017, “TDS (tax deduction at source) on Rent” under section 194-IB is now liable to be deducted by individuals where the monthly rent being paid to a resident landlord exceeds Rs 50,000 per month.  The revised Section 194-IB of the Income Tax Act, 1961 now states that for all rent transactions with effect from 1 June 2017, the tenant must deduct tax at source at the rate of 5 per cent and such tax should be deducted by the Tenant/Lessee/Payer of the property at the time of making payment of rent (to Landlord/Lessor/Payee). Tax so deducted should be deposited to the Government Account immediately or before 31 March of the same financial year, through any of the authorised banks and their branches.The TDS so deducted shall be paid to the credit of the Tax Department within a period of 30 days from the end of the month in which the deduction is made,  and shall be accompanied by a challan-cum-statement in Form No 26QC.
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Every individual person responsible for deduction of tax under section 194-IB shall furnish the certificate of deduction of tax at source in Form No 16C (TDS certificate) to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No 26QC.For the purposes of this section, "rent" means any payment, by whatever name it is called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

Points to be remembered by the landlord of the property:

  1. Provide your PAN to the tenant for furnishing information regarding TDS to the Income Tax Department.
  2. Verify deposit of taxes deducted by the Tenant in your Form 26AS Annual Tax Statement.
  3. Insist on obtaining from the tenant Form 16C - which must have been downloaded from TRACES website only.

Impact on foreigners and expatriates renting properties in India:

In the majority of cases, expatriates usually rent property for their tenancy through a company lease, wherein the liability to withhold tax becomes that of the company/employer. However, in recent times more and more expats are tending to rent properties in their personal name, and such personal leases are considered more tax efficient. Unfortunately the tax at source was not being recovered by the government in cases of such personal leases, and where rents were as high as Rs 200,000-300,000 per month.With the change in the Finance Act, all personal leases where the monthly rent was more than Rs 50,000 per month have now been controlled through the tax being withheld at source of 5 per cent of the monthly rent. This will increase the personal administrative efforts of individual foreigners who have rented properties for personal use through a personal/private lease, and the directions below should be considered by all persons executing a personal lease in India.

Points to be remembered by the tenant of the property:

  1. All individuals paying monthly rent to a resident in excess of Rs. 50,000 are liable to deduct TDS under section 194-IB.
  2. Deduct tax at 5 per cent from the rent payment made to the Landlord.
  3. Collect the Permanent Account Number (PAN) of the Landlord and verify the same with the Original PAN card.
  4. The PAN of the Landlord, as well as that of the tenant, should be mandatorily furnished via the online form for furnishing information regarding the rent.
  5. Do not make any errors in quoting the PAN or other details in the online form.  For the purpose of error rectification, you have to contact Income Tax Department.
  6. Download and furnish TDS certificate in Form 16C from TRACES and issue to the Landlord/ Lessor/Payee within 15 days from the due date of furnishing of the challan-cum-statement in Form 26QC.
  7. If the Landlord/Lessor/Payee is a non-resident, liability to deduct TDS is then taken under section 195 of the Income Tax Act, 1961.

For more articles on India, visit our dedicated India section. 

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