TDS on Rent for Commercial vs. Residential Property

In India, taxation is a very important aspect when it comes to property transactions,be it residential property or commercial property. One of the most common and important taxes is TDS (Tax Deducted at Source). TDS ensures that the tax which is deducted from payments is for particular transactions. TDS on rent is a very important responsibility for both commercial as well as residential property owners. In this blog, we explore what is the concept of TDS on rent and the difference between TDS on commercial property and residential property.

What is TDS(Tax Deducted at Source)?

Tax Deducted at Source is a type of income tax deducted by the individual making the payment in certain high-volume transactions, such as rental income. The individual who is receiving the money bears the tax responsibility, while the person who is deducting the TDS deposits the same amount into the Central government's account. TDS can be assessed on a variety of income sources, including the rent paid by tenants to landlords. TDS rates may vary as per the type of income. You can even calculate with the help of income tax calculator.

What is TDS on Rent?

Section 194I states that any person who pays rent to a person is liable for a 10% tax deduction at source on rent if the yearly rent is more than Rs. 2.4 lakhs. When a renter (payer) pays rent to the property owner (payee), they need to subtract a certain percentage of TDS before paying the rent. In order to ensure transparency and compliance, the deducted amount should be reported to the government and a TDS certificate must be handed over to the landlord.

Section 194I provides a detailed description of payment rent for the following:

• Any building, residential or commercial.
• A piece of land
• Furniture
• Machinery
• Equipment like computers, networks
• Industrial Plant
• Manufacturing Facility Plant

Applicability of TDS on Rent for Commercial and Residential Properties

Section 194-I of the Income Tax Act of 1961 governs TDS on rental income. This section explains the requirements for TDS on rent paid for both commercial and residential buildings.

• Commercial Property
  TDS on commercial property rents over ₹2,40,000 per year, including offices, stores, and warehouses. TDS must be deducted at a 10% rate on commercial property rentals.
• Residential Property
  TDS applies to residential property rents above ₹2,40,000 per year, including flats, apartments, and houses.Residential properties also have a 10% TDS rate.
  Individual renters, who are not subject to audit under the Income Tax Act, are not required to deduct TDS from residential property rent.

While TDS on rent applies to both commercial and residential properties, who must deduct the tax varies depending on the kind of property and income criteria.

How to Calculate TDS on Rent?

To bring more rental taxpayers into compliance with the Act, the Income Tax Department has enlarged the scope of tax deductions at the source. As a result, the tax deduction percentage varies based on the rental options available. Current Tax Deduction rates are as following:

• Rent for plant/ machinery/ equipment- 2%TDS on the paid rental amount
• Rent for furniture/ fittings- 10%TDS on the paid rental amount
• Rent for land/ building- 10%TDS on the paid rental amount
• Rent for land/ building- 10%TDS on the paid rental amount

Differences in TDS on Commercial Property vs. Residential Property

Though the basic principles of TDS on rent are applicable on both commercial and residential properties, there are some notable differences.

• Commercial Property
  For commercial properties, any tenant be it an individual or a company, or a firm must deduct TDS if the total rent exceeds ₹2,40,000 in a financial year. The TDS on commercial property is 10% if the landlord has submitted their PAN card. However, if the landlord fails to produce their PAN card, the cost rises to 20%, regardless of the property type.
• Residential Property
  For residential properties, individual tenants who are not subject to a tax audit under the Income Tax Act don't require to deduct TDS. Nonetheless, businesses and entities that are subject to a tax audit are required to withhold TDS from the rent on residential properties.The TDS rate for residential properties is 10% if the PAN card has been provided by the landlord. However, if the PAN Card is not provided, the rate will increase to 20%. The tenant can deduct 5% TDS on the rent paid if the monthly rent exceeds Rs 50,000.

How to do TDS on Rent Payment ?

There are many ways- offline and online both that can help you make TDS on rent payment easily:

• Cash: Pay your TDS on rent in cash at the counter by going to the bank branch that is closest to you. Make sure you request a receipt for the taxes paid.
• Cheque: Sending a cheque is another easy way to pay TDS on rent. Simply go to the branch that is closest to you and deposit the cheque in the Income Tax Department's name together with the necessary amount. Don't forget to get a receipt for ta paid.
• NEFT/RTGS: Either NEFT or RTGS can be used to pay the rent's TDS. To start the procedure, you will need to complete a short form and bring it to the bank branch counter.
• Net Banking: To access your online banking account, use your special banking credentials. To make TDS on rent payment, select the Net banking option (included in the payments section). Once completed, you will receive the Challan Identification Number, which you may use to verify the progress of your payment at a later time.
• Mobile Banking: A few banks accept TDS payments using their mobile banking apps. In both situations, the procedure is the same (Net and Mobile banking). To find TDS under the rent payment option, simply use your unique banking credentials to log into the mobile application.

Documents required to submit TDS on rent

For the deduction of TDS on rent, following documents are required:

• The PAN card of the landlord
• The Aadhaar Card of the landlord
• PAN Card of the tenant
• The Aadhaar Card of the tenant

To guarantee compliance with tax requirements, it is imperative for both tenants and landlords to comprehend the subtle differences between TDS on rent for residential and commercial properties. Although the fundamentals of TDS deduction are the same for both kinds of properties, there are some particulars that need to be followed, like the tenant's duty to deduct TDS in accordance with the kind of property, yearly rent thresholds, and applicable TDS rates.

Tenants can prevent fines and guarantee prompt compliance by remaining aware of the relevant rules, while landlords can profit from an easy way to claim TDS credits on their income tax returns. Rent-related deductions (TDS) are essential for guaranteeing effective tax collection and payment to the government, regardless of whether the premises are commercial or residential.

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