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Budget 2017 - Deduct taxes from your rent payable if it exceeds INR 50K per month

FEBRUARY 07, 2017

By Suresh Kumar & Naveen Kumaar

Individuals and HUFs were largely outside the purview of tax withholding obligation in India. Say for instance, currently, only Individuals and HUFs who have a requirement to get their books audited, are under an obligation to deduct taxes at source ('TDS') on rental payment exceeding INR 1.8 lakhs per financial year.

However, as an unprecedented measure, it is now proposed(by way of New Section 194-IB inserted by clause 63 of the Finance Bill, 2017) that the individuals or HUFs (who are not required to get their books audited), responsible for paying rent to a resident in excess of INR 50,000 per month, is required to deduct taxes. The taxes would have to be deducted at the rate of 5% along with applicable surcharge and cess. Further, the compliances relating to deposit of taxes and reporting has been simplified as detailed below:

- No requirement to obtain a Tax deduction Account Number (TAN).
- No requirement to file quarterly returns and issuance of withholding certificate.
- One time deduction and deposit of taxes unless there is a termination of tenancy.
- Simple challan-cum-statement for TDS deposit

It is pertinent to note that any non-compliance with the proposed TDS would have similar implications as applicable for other TDS defaults.

- Interest at the rate of 1.5 percent per month or part of the month where the tenant deducts and fails to deposit the taxes.

- Interest at the rate of 1 percent per month or part of the month on the taxes deductible, if the tenant does not deduct or short deduct the taxes.

In addition to the above, the tenant may be considered as an assessee in default and there may be penalties and prosecution depending on the facts of the case.

However, to ensure that individuals are not over burdened with the above, there is need for specific relief here. However, as an alternative, to enforce compliance with the proposed provision, the applicable exemption / deduction for rent paid could be denied in case of non-compliance.

Also, there are certain other challenges with the proposed provision which could additionally burden Individuals.

- Landlord does not have a PAN or fails to furnish PAN to the tenant

- Need for higher TDS (20 percent) in case of no PAN. Importantly, how this needs to be deposited

- Landlord has no tax liability, for instance in case of super senior citizens

- Errors or omissions in the challan-cum-statement

- Practical challenges say with up front rent payments in case of multiple year lease / adjustment of rental dues with the security deposit

This is in addition to a recent change whereby employees are required to furnish landlord's PAN to the employer for availing HRA benefit, if rent payments exceeds INR 100,000 per annum. Further, the employers are required to capture the same in the quarterly e-Tds returns. Thus, employees should have been kept outside the purview of this proposed change.

The above is a welcome move from the perspective of widening the tax base. However, given that individual assesse are burdened with added compliance there is a need for additional clarifications. Also,some relaxation in the existing penal provision and excluding employees from this requirement would be appreciated.

(About the author(s) - Mr. Suresh Kumar is Director; and Mr. Naveen Kumaar is Manager with Deloitte Haskins and Sells LLP and the views expressed are strictly personal.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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