The provision of TDS is applicable only on the amount of rent paid; therefore, it is not applicable on the refundable security deposit amount that a tenant pays in lump sum to the landlord. However, TDS provisions will be applicable in case of non-refundable deposits which are in the nature of rent. When the rented property has co-owners, a separate threshold limit is applicable to each co-owner. For instance, if an assessee is required to deduct TDS under section 194I; and the total rent is Rs. 4 lakh to be paid to two co-owners, then separate limits of Rs. 2.4 lakh will be available for each of the co-owners.
Let’s understand this with an example: A is an individual engaged in business and his turnover in the previous financial year is more than Rs. 1 crore. He is paying rent to B and C who are co-owners of the residential property where he stays. The rent paid to B is Rs. 18,000 per month and that paid to C is Rs. 15,000/- per month. The said rent is paid in cash by A.
In this case, section 194I is applicable as A is engaged in business and his turnover in the previous financial year is more than Rs. 1 crore.
TDS will be deducted at 10% if the rent exceeds the threshold of Rs. 2.4 lakh per co-owner per year; which is not happening in this case (rent paid to B is Rs. 2.16 lakh and to C is Rs. 1.8 lakh). Therefore, TDS will not be applicable in this case.
As for the taxability for B and C, the rent received will be taxed under the head ‘income from house property’. However, B is not entitled to receive rent in cash as the amount exceeds Rs. 2 lakh, which is in violation of section 269ST of I-TAct, 1961, and penalty under section 271DA can be levied, which is equal to the amount of receipt.
Penalty for not deducting TDS
A person who fails to deduct TDS will be liable to pay interest on a monthly basis at 1% (In case TDS is not deducted or paid) or 1.5% (in case TDS is deducted but not paid). The late fees for not filling TDS return is Rs. 200 per day.
In case where the tenant fails to file the statement of TDS within the due date, penalty ranging from Rs. 10,000 to Rs. 1 lakh can be levied under section 271H.