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      TDS on Rental Income: What is the Limit & How Much Is Refundable?

      • 5 min read
      • Last Modified Date: September 26, 2023
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      What and why is there TDS on Rental Income, you ask? Government statistics report that hardly 1% of Indians pay income tax.

      What and why is there TDS on Rental Income, you ask? Government statistics report that hardly 1% of Indians pay income tax. Thus, tax evasion is serious in India. Therefore, Indian authorities have enforced tax deductions at the point of sale to combat tax evasion, particularly in large-ticket purchases. Thus, also imposing TDS on rental income. It means that while the transaction is in progress, one party, often the buyer or tenant in real estate transactions, must deduct the tax amount on behalf of the government. This tax deduction is also known as TDS or tax deducted at source.

      What is rental income?

      Rental income is money made by renting out real estate that you own or have access to. You can own property by yourself or in partnership with another individual. Renting a home, apartment, room, office space, or immovable property generates rental revenue. Rental income is the amount of rent paid by renters to their landlords. It consists of the payments for the rented space, furniture, and other charges by the landlord. Such services include cleaning shared rooms, hot water, heating, and property maintenance.

      Rental revenue varies according to the landlord and the rented property. There are disparities in the services provided, the size of each property, the fact that some locations are hotter than others.

      Also read: Tax on Rental Income: How To File & Claim To Save Rental Income Tax.

      And what is TDS on rental income?

      TDS is a type of income tax that gets deducted by the payer when making certain payments. It indicates that the person receiving the money in the transaction bears the tax responsibility. TDS is a procedure through which tax gets collected at the point where an individual’s income gets earned. TDS gets imposed on various revenues, including a landlord’s rent, commission, professional fees, salary, interest, and so on. Varied forms of income are subject to different TDS rates under the income tax legislation.

      According to the Income Tax Department, the idea of TDS got created to collect tax at the point of origin. According to this principle, everyone required to make a specific payment to another person must deduct tax at the source and send it to the central government. The deductee whose income tax has gotten deducted at source is entitled to a credit for the amount deducted based on the deductor’s Form 26AS or TDS certificate.

      Also The Updated Rental Income Tax Calculator For India In 2021-2022.

      What is the limit of TDS on Rental Income?

      Section 194I of the Income Tax Act now requires rent payers to deduct tax at the rate of 10% of the rent on any land or building if the total rent paid or projected to get paid during the year exceeds Rs 2.40 lakhs.

      According to Section 194I of the Income Tax Act of 1961, a person (other than an individual or a HUF) who gets responsibility for paying rent gets required to deduct 10% of the yearly rent as tax deducted at source if the annual rent exceeds Rs. 2.4 lakhs. Previously, the TDS ceiling for deducting tax on the rental income was Rs. 1.8 lakhs. It was, however, increased to Rs. 2.4 lakhs with effect from the fiscal year 2019-2020.

      The restriction of Rs 2.40 lakhs applies to each payee and not to each property. So, if the owner has rented out more than one property to the same lessee and the annual rent for each property is less than Rs 2.40 lakhs, the aggregate rent for all the properties rented from the same person is likely to exceed Rs 2.40 lakhs. Thus, the lessee must deduct the tax at the source.

      How do I calculate TDS on Rental Income?

      Returning to the age-old subject, how does one compute TDS on rental income?

      Persons covered by this provision are required to deduct tax when making a payment to a taxpayer who is a resident of India, provided the rent payment exceeds Rs 2.40 lakhs in a year.

      If the lessor is a non-resident for income tax purposes, the payer must deduct tax per Section 195 of the Income Tax Act, with no annual threshold limit of Rs 2.40 lakhs.

      The payment may get referred to by any name. But the tax must get deducted if the rent is for the use of land, a building, or both.

      It does not require that the person receiving the rent be the owner. As a result, if a lessee sublets the property he has rented or leased to another person, the sub-lessee must deduct tax at the source.

      How is GST calculated on commercial rental income?

      When the rental revenue from commercial leasing exceeds Rs.20 lakhs, GST will get levied. But, when you rent out a residential home for personal use, you are not subject to GST. However, any other leasing or renting out the immovable property for commercial purposes would attract 18% GST. It is because this gets considered a provision of service. It involves entirely or partially leasing commercial and residential property for business purposes. The threshold limit was also raised from Rs.10 lakh to Rs.20 lakh after GST. Furthermore, it allowed many landlords to avoid paying GST.

      The nature of the property does not determine GST eligibility. But the purpose for which it gets utilized does. If you live in Delhi and own a property in Chennai that gets rented to a listed firm for use as a guest home, the rental income will attract GST if it exceeds Rs.20 lakhs per year. The house gets used as a guest house which is for commercial use.

      In the preceding scenario, where will the supply come? The location of the immovable property is the place of supply under GST. Even though you live in Delhi, the property’s location will always be Chennai, and hence the state to receive the SGST will be Tamil Nadu.

      If the rental flow is less than Rs. 20 lakh per year, it is excluded from GST payment. To emphasize, it is the nature of the end-use, not the character of the property, that determines whether it is a commercial rent or a residential rent.

      Here’s Understand Impact of GST on Rental Income Under GST?

      TDS on Rental Income FAQ’S:

      Is it mandatory to deduct TDS on rent?

      TDS of 10% is required to be deducted if the rent paid/ due during the fiscal year exceeds Rs. 2.4 Lakhs. TDS on rent gets deducted under Section 194I at 10% of the total amount paid or due throughout the year.

      How is TDS on rent calculated?

      TDS on rent is calculated at 10% as per the rates for rent for land, building, furniture, and fittings which is 10% TDS on the rent amount paid.

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