The income earned by individuals from renting a property is subject to taxation if it exceeds a specified amount. The provisions of Section 194-1 of the Income Tax Act, 1961, mention the tax deducted at source (TDS) on rent. The tax should be deposited with the income tax department within a specified time. Moreover, one is also required to file the TDS returns. If a person does not comply with these rules, they are required to pay a penalty.
Types of penalty related to TDS on rent
- TDS not deducted within a specified time
- TDS not deposited within the prescribed time
- Failure to file TDS return on time
See also: TDS on rent under Section 194I
TDS on rent by Individuals
A tenant is required to deduct TDS if the payment is being made to a resident landlord on rent exceeding Rs 2.4 lakh per year. If case of an NRI landlord, tax is deducted under the provisions of Section 195 at the applicable rate.
For Individuals and HUFs, TDS at the rate of 5% is deducted if the rent for each month or part of the month is more than Rs 50,000.
Penalty for not deducting TDS on rent
The penal interest is charged on the TDS amount if a person fails to deduct TDS. According to Section 201 (1A), they must pay interest at the rate of 1% per month from the date when the tax is deductible till the date when the tax amount is deducted.
For example, if a person has to deduct TDS at the rate of 5% for rent of Rs 51,000. The TDS amount will be Rs 2,550. In case the person defaults on the TDS payment for two months. One per cent penal interest for one month will be charged, which is equal to Rs 2,575.5.
Penalty for TDS deducted but not deposited
If an individual has deducted tax but has not deposited the amount with the government, an interest at the rate of 1.5% per month is applicable from the date when tax amount is deducted to the date of deposit of the TDS. This provision is given under Section 201 (1A) of the Income Tax Act.
For example, if the TDS amount calculated is Rs 2,000, but the payment was not deposited for one month, the total penalty will be 1.5% of Rs 2,000 (which is Rs 30) plus the TDS amount (Rs 2,000). The total penalty is Rs 2,030.
Penalty for not filing TDS return
According to the Income Tax laws, there is a penalty in case of failure to furnish the statement of TDS or statement of Tax Collected as Source (TDS/TCS return). Individuals are required to file a TDS challan-cum-statement (Form 26QC) for the tax deducted and deposited by them. An individual cannot file the TDS statement without depositing the TDS.
If a person fails to file the TDS/ TCS return on or before the due dates or files an incorrect statement, they must pay a penalty under section 271H. A late fee of Rs 200 per day is charged until the TDS return is filed, as per section 234E. The fine shall not exceed the total TDS amount. Under section 271H, a penalty of a minimum Rs 10,000 is levied, up to a maximum of Rs 1,00,000. This is applicable if the challan statement is not filed within one year from the expiry of the due date, which is March 31 of the financial year.
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Harini is a content management professional with over 12 years of experience. She has contributed articles for various domains, including real estate, finance, health and travel insurance and e-governance. She has in-depth experience in writing well-researched articles on property trends, infrastructure, taxation, real estate projects and related topics. A Bachelor of Science with Honours in Physics, Harini prefers reading motivational books and keeping abreast of the latest developments in the real estate sector.
