The Income Tax Department has issued notices to taxpayers who have been paying monthly rent of Rs 50,000 or more but failed to deduct Tax Deducted at Source (TDS) before remitting the amount to their landlords, a tax expert revealed.
Why Are Tenants Receiving Notices?
According to tax laws, tenants paying rent of Rs 50,000 or more per month must deduct TDS at 2% (effective from October 2024, earlier 5%) and deposit it with the Income Tax Department. However, several taxpayers failed to comply with this requirement for Assessment Years 2023-24 and 2024-25 and are now receiving notices urging them to rectify their filings.
Options Available for Taxpayers
The notice allows affected individuals to file an updated income tax return, adjusting their House Rent Allowance (HRA) claim to correct non-compliance before penalties are imposed.
Consequences of Non-Compliance
Failure to deduct TDS on rent can result in:
- Being treated as an "assessee in default"
- Interest penalties ranging from 1-1.5% per month
- Additional fines imposed by the tax authorities
Exemption from Penalty
Tenants can avoid penalties if their landlord has already declared rental income in their Income Tax Return (ITR) and paid taxes on it. However, obtaining proof from landlords can sometimes be challenging due to privacy concerns.
Key Takeaways
To avoid penalties and compliance issues, tenants must:
- Deduct 2% TDS on rent payments above Rs 50,000 per month
- Deposit the TDS with the Income Tax Department on time
- Obtain proof of tax payment from landlords (if applicable)
As the Income Tax Department intensifies scrutiny on high-rent payments, taxpayers are advised to review their filings and ensure compliance to avoid penalties.
CAclubindia
