What is TDS on Rent Paid by Salaried Employees?

What is TDS on Rent?

Generally, a person receiving income must pay the income tax. TDS is an indirect way of collecting this income tax. TDS stands for Tax Deducted at Source. According to the income tax act of 1961, any permissible payment has to be deducted before payout. This is applicable to rent, incentives, commissions, dividends and much more.

TDS on rent means the person paying the rent has to deduct an amount from the rent payable and deposit it with the government if the total rent exceeds Rs 2,40,000 a year. This limit was Rs 1,80,000 in the past. The term rent includes rent being paid on land, buildings, equipment, furniture, machinery, industrial plants, and fittings.

Budget 2019-2020: TDS on Rent

Before the new budget, TDS was applicable only to particular professionals and businessmen. But now, salaried employees are liable to deduct TDS on rent.

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What is TDS On Rent Paid By Salaried Employees?

Let's take a look at the various sections that come under the new budget of 2019-2020:

Section 44B: Business and Professionals

Under this section, TDS must be deducted if the total rent payable for a fiscal year exceeds Rs 2.4 Lakhs. This is when the rent payers are professionals or businessmen; who must mandatorily undergo the tax audit. If no tax audit is required, there’s no need to deduct any tax from rent payable irrespective of the amount.

See Also: Everything About TDS

Section 194I: Non-Individuals

This section applies exclusively to non individuals and HUFs (Hindu undivided family). A private company which undergoes tax audits and pays rent exceeding Rs 2.4 Lakhs must deduct TDS. TDS rates are as follows:

• On machinery , plant or equipments - 2%
• On land, building, furniture or fittings - 10%.

Section 194IB: Salaried Employees

If you are a salaried employee, then you must deduct TDS on rent paid if the total rent payable for a month is more than Rs 50,000. This is also applicable to business and professionals whose yearly turnover is less than Rs 50 lakhs or Rs 1 Crore. TDS deducted in this case is 5% on total rent paid/payable. TDS is deducted once each year.

See Also: Filing your ITR? Know Everything About TDS for Financial Year 2019-20

Individuals who do not have to conduct tax audit by a CA, were not required to pay TDS on rent. With the introduction of the new law, this has changed.

To get more clarity, take a look at the table given below:

Type of Rent	TDS Rate	Section of IT act
Rent paid towards commercial/industrial premises	10%	194-I
Rent paid towards commercial/industrial premises by non individuals. Eg: companies	10%	194-I
Rent paid towards residential premises by salaried/self employed individuals	5%	194-IB

• TDS exclusive of GST

• GST on rent is a fixed rate of 18% on the rent paid. But, this is applicable only on renting of commercial properties and not residential properties. If a residential property is rented out for commercial purposes, then GST would be levied.

See Also: Check If Your TDS Is Actually Going To Government

• Few other Exemptions of GST on TDS are:

-The rent on a property is received directly by a registered charitable/religious trust.

-The landlord does not have a GST registration.

-The total services offered by the landlord is less than Rs 20 Lakhs during a year.

The following example gives a better insight on the above topic:

A company pays Rs 60 Lakhs each year as rent on its office to a landlord. So, he is liable to pay tax of 10% under Section 194-I of the income tax act. A GST of 18% is applicable on the same. This will cost him-

Rent                =   Rs 60,00,000

 (+)    [email protected]%     =   Rs 10, 80,000​

• Form 15G for Lower Deduction of TDS on Rent

In case the source of income is rental income, then he can submit form 15G, which is for non-deduction of TDS. It is a self-declaration form. A few things to be considered before submitting the form are:

- The person must be less than 60 years​

-The payable tax calculated for the financial year is zero.

This form relieves people with a lesser income to be free of TDS.

See Also: How is TDS Calculated on Salary?

• How to Calculate Rent on Salary?

There is a component called HRA which stands for House Rent Allowance in the salary structure of each employee. This part of the salary reduces a taxpayer's tax liability if he/she stays at a rented place. HRA changes with salary. It also depends on the employee's city of residence.

HRA is important because there are tax exemptions. Tax benefit on HRA is selected from the following list:

• 50% of basic salary if the employee resides in the city of Delhi, Mumbai, Chennai, Kolkata. 40% of basic salary if in any other cities.
• Actual rent paid minus 10% of basic salary.
• Amount allotted as HRA by the employer.

The least of the above three conditions will be the tax deduction benefit.

Example:

To understand how to calculate HRA for an employee and tax benefit on HRA let's take an example of a person named Raj residing in the city of Mumbai. He stays with his family in a rented apartment, paying Rs 12,000 each month.

His salary structure is:

Basic	Rs 40,000
HRA	Rs 18,000
Conveyance	Rs 3000
Special allowance	Rs 2000
Total earnings	Rs 63,000

To calculate the HRA amount exempt from tax, we have the following information:

• HRA provided by employer = 12(months) * Rs 18000= Rs 2,16,063.
• Actual rent paid minus the basic salary = (12 months * Rs 12 000) – Rs 48, 000 = Rs 96,000.
• 50% of basic salary as he lives in Mumbai = Rs 2,40,000.

Raj enjoys a tax benefit of Rs 96,000 from HRA allowance, as that is the least of the above three conditions.

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