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How does TDS affect the rent under Income Tax Law?

Posted by Balaji on January 29, 2021

Before you learn about how TDS works you need to know what TDS is. TDS is a part of

the Income Tax Department. In order to collect tax from each individual from their

source income, the tax department implemented TDS. Their objective is if a person is

capable of paying tax then they will charge a certain amount from their source income.

After deducting the tax the department issue a Form 26AS or TDS certificate in the

name of the taxpayer.

In due time people often try to evade taxpaying procedures. This is the reason the tax

department imposes a tax on multiple incomes. Under Income Tax Law individual has

to pay tax on the house for Rent in India. In this blog, you are going to have an idea of

how much tax is levied on rent.


Idea about TDS on Rent:

Under Section 194I of the Income Tax Act, a person is required to pay 10 percent of

the rent on any land as a tax. The aggregate goes up to 2.40 lakh rupees if the person

pays the rent annually. If you have more than one property and at the same time you

let out the properties on rent, then you may exceed 2.40 lakhs.


Who is Liable to Deduct TDS u/s 194I?

The person who is responsible for paying any income to a resident by way of rent is

liable to deduct tax at source.

As per Budget 2017, individual /HUF (not covered under tax audit) paying rent to a

resident exceeding Rs. 50,000 per month are also liable to deduct TDS @ 5 percent.

In case the aggregate of the amount of such income credited/paid or likely to be

credited/paid during the financial year by the person to the account of the payee

exceeds Rs. 2,40,000.


Calculation Procedure of TDS on Rent:

Permanent residents of India are subject to the Income Tax Law. And the tax is

imposed when the payment of the rent reaches 2.40 rupee lakhs. In the case of a non-

resident, the tax is deducted as per Section 195 of the Income Tax Act.   There is no

strict limit of 2.40 lakh rupees per year in that case.


The tax is compulsory, whether you pay for a plot or for a home. It is also important to

note that, the recipient does not have to be the owner of the property.  Like residential

payment tax, the same tax is applicable for hotels as well. If you rent a room at any

hotel, you need to pay tax along with a room charge.


The hotel has offered you space to stay, which is why you have to pay tax. This is the

bottom line of the rent tax payment. The tax percentage varies depending on the type

of hotel.


Time of TDS Deduction on Rent:

There is a time for paying the tax and that is when you are paying the rent. The

payment will be credited to the recipient’s account. If you are making an early

payment, then you can pay the tax while paying. In such a case, you can pay the tax

for the year in advance. The tax will reach the Indian Government. You need a tax

deduction account number or TAN, along with a challan. The challan is the proof that

you deposited your tax.

In order to ease the process, the government agreed to deduct tax at a monthly rate

of 5 percent. The spectrum has been widened by the government so that people do not

find taxation difficult. As per the law, the payer has to deduct tax in the last of the

year. With help of this new provision people who are not associated with any business

can now pay tax.


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