From June 1, 2017, all individuals who pay rent of more than Rs 50,000 per month will have to deduct tax at source at the rate of 5% as per an amendment to the Income Tax Act.
You are responsible to deduct this tax in the last month of the financial year, or the last month of your rental agreement if you plan to vacate the house during the year. We recommend you deduct this tax along with the payment of your rent.
If you house owner does not have a PAN number then you have to deduct tax at a higher rate of 20%.
The tax deducted is to be paid within 30 days from the last day of the month in which the deduction was made. You can remit it to the bank, file form 26QC and submit a copy of the form 16C to your house owner. Remember form 16C to the house owner is to be issued within 15 days of filing form 26QC.
If you do not comply with the TDS deduction rules it will attract penalty @1% per month. If the tax is deducted but not paid it will attract penalty @ 1.5% per month. If the required statements are not filed it will attract a penalty of Rs 200 per day for the period of delay.
Example – If you pay rent of Rs 90,000 per month for the period June 1 2017 to 31 March 2018 the total rental amount is Rs 9 lakh. The TDS @ 5% will be Rs 45,000. You are responsible to deduct this amount from your March 2018 rental payment and pay the balance amount to your house owner.