Individuals and HUFs paying rent of Rs 50,000 or more per month will now have to deduct 5% tax at source i.e TDS at the rate of 5%, as per Budget 2017 proposals. This move is aimed at ensuring that recipients of large rental incomes come into the tax net as they would be forced to report the full rental income in their tax returns in order to claim benefit of the TDS amount. This change is proposed to be made effective from 1.6.2017.
The existing provisions of section 194-I of the Act provide for TDS at the time of credit or payment of rent to the payee beyond a threshold limit. Currently, this provision is applicable to Individuals or Hindu undivided family (HUF) which is liable for tax audit under section 44AB.
However, Individuals and HUF other than those liable for tax audit were not liable to deduct tax at source under this section i.e. section 194-I of the Act. In order to widen the scope of tax deduction at source, it is proposed to insert a new section 194-I B in the Act to provide that Individuals or an HUF (other than those covered under 44AB of the Act), paying to a resident, rent of over Rs 50,000 per month, shall deduct tax at source of 5%.
However, to make this rule tax -payer friendly and easy to comply with, it is proposed that the payer need not obtain a TAN and is required to deduct the tax only once in a financial year.
It is proposed that tax shall be deducted at the time of credit of rent, for the last month of the financial year or the last month of tenancy if the property is vacated during the year to the account of the payee.
Source: The Economic Times