Income Tax Department is sending Notices Over TDS on Rent Above ₹50,000, Know How to avoid Penalty
If you are paying rent of ₹50,000 or more per month, you may have received a notice from the Income Tax Department recently. This notice is being sent to taxpayers who have not deducted Tax Deducted at Source (TDS) while paying rent to their landlords. Let’s break down what this means, why it’s happening, and how you can address it.
Why Are These Notices Being Issued?
According to the Income Tax Act, tenants paying rent of ₹50,000 or more per month must deduct 2% TDS (Tax Deducted at Source) on the rent amount before paying the landlord. This rule, which became effective from October 2024 (earlier the rate was 5%), places the responsibility of deducting and remitting the TDS on the tenant, not the landlord.
If you fail to do this, the Income Tax Department considers you as an “assessee in default.” This means you may face fines, interest penalties, and other charges due to non-compliance.
What Does the Notice Say?
Tax expert Abhishek Murali, President of the All India Tax Payers’ Association, explains that these notices relate to assessment years 2023-2024 and 2024-2025. The notice mentions that you may have claimed House Rent Allowance (HRA) without properly deducting TDS on rent payments. It may also advise you to file an updated Income Tax Return (ITR) by adjusting your claim to correct this issue.
Penalties for Non-Compliance
If you haven’t deducted the mandatory TDS, the Income Tax Department may charge you interest and penalties. Typically, the penalty can be between 1% and 1.5% per month, depending on how long the default continues.
Is There Any Way to Avoid Penalty?
Yes, there is an exemption!
If your landlord has already filed their Income Tax Return (ITR), reported the rental income, and paid taxes on it, you may not be considered in default. In such cases, if you can provide proof to the Income Tax assessing officer, you won’t have to pay the penalty or interest.
Practical Challenges for Tenants
However, this can be tricky. Some landlords may not be willing to share their confidential financial documents with tenants. Because of this, it’s usually better to follow the rule and deduct TDS on rent to avoid unnecessary complications later.
Advice for Tenants
To stay on the safe side:
- Deduct TDS: Deduct 2% TDS from the rent if you pay ₹50,000 or more per month.
- Timely Remittance: Make sure to remit the TDS amount to the Income Tax Department on time.
- Keep Records: Maintain proper records of the TDS deductions and payments to avoid any future issues.
Conclusion
The Income Tax Department’s notices are a reminder to taxpayers to comply with TDS rules on rent payments. Ignoring these rules can lead to fines and penalties. To avoid trouble, ensure you are deducting and paying TDS correctly. This small step can save you from bigger problems later.
