IMPORTANT: New Income Tax Law For Tenants! TDS To Be Deducted On Rents!

In order to widen the scope of TDS, the government has proposed to insert a new section of 194-IB in the I-T Act to provide that an individual or a HUF.

In order to widen the scope of TDS, the government has proposed to insert a new section of 194-IB in the I-T Act to provide that an individual or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding Rs.50000 for a month or part of month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon. The following amendment will take effect from 1st June 2017.

Further, a proposal has been made in Act that tax shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

In a bid to put control over the unaccounted high rental income and formalise the rent mechanism, the FM has increased the scope of TDS. The existing provisions of section 194-I of the Act, among other things, provide for TDS at the time of credit or payment of rent to the account of the payee beyond a threshold limit.

It is further said that an individual or a Hindu undivided family who is liable for tax audit under section 44AB for any financial year immediately preceding the financial year in which such income by way of rent is credited or paid shall be required to deduction of tax at source under this section. Therefore, under the existing provisions of the aforesaid section, an Individual and HUF, being a payer (other than those liable for tax audit) is out of the scope of section 194-I of the Act.

In order to reduce the compliance burden, it is further proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act. It is also proposed that the deductor shall be liable to deduct tax only once in a previous year.

It is also proposed to provide that where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Views From Team BWA:

This ruling does not have a great financial implication on either the Licensor or the Licensee. However, in some cases we do expect a bit of a misunderstanding between the 2 parties especially on the Licensor’s front. It may be noteworthy that this ruling should supersede all the clause in your Leave & License Agreement and should not affect the agreement terms and conditions in any way. In case of a disagreement one should have the tax/financial consultants of both parties and have the issue resolved.

Please call us, if there is any way we can help.

Cheers

Team BWA