How to Report TDS on Rental Income and Avoid Income Tax Notices for Incorrect Filing
- Bhavika Rajput
- Jun 27
- 9 min read
Rental income is an essential source of income for many, but it is often overlooked when it comes to tax reporting. The Income Tax Department mandates that Tax Deducted at Source (TDS) is applicable on rental income, requiring landlords to report and comply with certain regulations. For property owners, understanding how to correctly report TDS on rental income is crucial to avoid penalties or tax-related issues. In this guide, we will walk through the concept of TDS on rental income, the step-by-step process for reporting it, and provide insights into common mistakes that property owners often make. Special considerations for Non-Resident Indians (NRIs) will also be discussed, as they face different tax obligations. Lastly, we’ll explore the latest changes in the tax regime effective from April 2025 to ensure you're prepared for future filing.
Table of Contents
Understanding TDS on Rental Income
Tax Deducted at Source (TDS) is a mechanism introduced by the government to collect taxes at the point of income generation rather than at the end of the fiscal year. When it comes to rental income, TDS is applicable when the rent paid to a landlord exceeds a certain threshold limit. Under Section 194-IB of the Income Tax Act, landlords receiving rent above ₹50,000 per month are subject to TDS. The tenant is responsible for deducting the TDS from the rent payment and remitting it to the government.
For individuals and Hindu Undivided Families (HUFs) who are paying rent, the TDS rate is typically 5% on the rent amount. However, businesses or professionals may have different TDS obligations, so it is essential to determine which category you fall under. TDS on rental income ensures that taxes are deducted before the rent is paid to the landlord, reducing the risk of tax evasion.
Step-by-Step Process to Report TDS on Rent
Reporting TDS on rent involves both the tenant (payer) and the landlord (payee), and it’s important to follow the right procedure to ensure compliance. Here’s a step-by-step breakdown of the process:
Deducting TDS: As a tenant, if you are paying rent above ₹50,000 per month, you are required to deduct TDS at 5%. For example, if the rent is ₹60,000 per month, the tenant will deduct 5% of ₹60,000, i.e., ₹3,000, and pay the landlord ₹57,000.
Deposit TDS with the Government: The deducted TDS must be deposited with the government on or before the 7th of the following month in which the deduction was made. The tenant must file TDS returns and obtain a Challan.
Issue TDS Certificate to Landlord: After depositing the TDS, the tenant must issue a TDS certificate (Form 16C) to the landlord. This certificate provides evidence of the tax deducted and paid on behalf of the landlord.
Landlord Reporting: As a landlord, you must include the rental income, along with the TDS details, in your Income Tax Return (ITR). The TDS paid by the tenant will be reflected in the landlord's Form 26AS and should be reported when filing the return.
File TDS Return (Form 24Q): The tenant should also file a TDS return in Form 24Q on a quarterly basis. This ensures that all TDS payments are correctly reported to the Income Tax Department.
Avoiding Income Tax Notices: Common Mistakes & Best Practices
When it comes to TDS on rental income, mistakes are common and can lead to tax notices from the Income Tax Department. Here are some common mistakes and best practices to avoid them:
Not Deducting TDS on Time: Tenants sometimes forget or delay the TDS deduction, which can lead to penalties. Always ensure that TDS is deducted at the time of rent payment and deposited within the required time frame.
Incorrect TDS Rate: Using an incorrect TDS rate can lead to under-deduction or over-deduction of tax. The standard TDS rate for rental income is 5%, but different rates may apply in special cases (e.g., non-residents). Be sure to check the rate applicable to your situation.
Failure to Provide TDS Certificate: Tenants are required to provide a TDS certificate (Form 16C) to the landlord. Failing to do so can cause discrepancies in the landlord’s tax filings, leading to tax notices. Ensure that you issue the certificate promptly.
Mismatch in TDS and Rent Details: Discrepancies between the rent paid, TDS deducted, and the information provided in the return can lead to mismatches in Form 26AS. Ensure that the details match across the different forms and returns to avoid scrutiny by the Income Tax Department.
Failure to Report Rental Income: Landlords must report all rental income, including the TDS deducted by the tenant, in their ITR. Failure to report all rental income can result in penalties and interest. Always cross-check your Form 26AS to ensure that all TDS details are included.
Special Considerations for NRIs
Non-Resident Indians (NRIs) often face different tax rules regarding rental income, including TDS obligations. If an NRI is receiving rent in India, the tenant is still responsible for deducting TDS at the applicable rate. However, the process differs slightly:
TDS Rate for NRIs: The TDS rate for NRIs on rental income is higher than for Indian residents. The rate is 30% under Section 195 of the Income Tax Act. This means that the tenant must deduct 30% of the rent paid before making the payment to the NRI landlord.
Tax Filing for NRIs: NRIs must file their Income Tax Returns (ITR) in India to report rental income. They can claim credit for the TDS deducted by the tenant when filing their ITR, provided the tax has been duly deposited with the government.
Double Taxation: NRIs may also need to consider double taxation agreements (DTAA) between India and their country of residence, as this may affect the taxation of their rental income. NRIs can claim relief under the DTAA to avoid being taxed twice on the same income.
Special Provisions for NRIs: NRIs may also be eligible for certain exemptions, such as exemptions on capital gains tax, depending on the nature of the rental property. It is essential for NRIs to understand their tax obligations in both their country of residence and India.
Latest Changes Effective April 2025
Starting from April 2025, there are several significant changes that landlords need to be aware of concerning TDS on rental income:
Updated TDS Filing Mechanisms: The Income Tax Department is making improvements to the TDS filing process, with a focus on simplifying the paperwork and enhancing online filing features for both tenants and landlords.
Revised TDS Rates: While the current TDS rate for residents remains at 5%, there may be further adjustments in tax rates based on income brackets or if any new amendments are introduced by the government to promote tax compliance.
Expansion of TDS Filing Requirements: The government is expected to increase the scope of reporting by both tenants and landlords, including the introduction of more detailed TDS reporting through online platforms.
Stronger Enforcement of TDS Rules: With increasing scrutiny on rental income, landlords and tenants should expect more stringent enforcement of TDS regulations starting from April 2025. This means that failing to comply with TDS regulations could result in higher penalties.
Conclusion
Correctly reporting TDS on rental income is vital to staying compliant with tax laws and avoiding penalties. Timely TDS deductions, deposits, and filing forms are essential steps. Professional services like TaxBuddy can simplify this process, ensuring that you never miss a deadline and file without errors.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile appfor a simplified, secure, and hassle-free experience.
FAQs
1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
Yes, TaxBuddy offers both self-filing and expert-assisted options. The self-filing plan is ideal for those who are comfortable with the tax filing process and prefer a do-it-yourself approach. TaxBuddy’s platform provides easy-to-use tools that guide you through the process. For those seeking professional help, TaxBuddy also offers expert-assisted filing plans, where qualified tax professionals assist in filing your returns, ensuring accuracy and compliance with tax laws. This flexibility allows users to choose the plan that best suits their needs.
2. Which is the best site to file ITR?
The best site for filing ITR depends on individual preferences and the complexity of your tax situation. TaxBuddy is an excellent choice for those who want a comprehensive solution for both simple and complex returns. Its AI-driven platform automates tax filing, reduces errors, and provides post-filing support. Other popular platforms like ClearTax also offer ITR filing services, but TaxBuddy stands out for its intuitive design, seamless user experience, and expert assistance. TaxBuddy is especially beneficial for those with more complex tax situations or those requiring personalized assistance.
3. Where to file an income tax return?
Income tax returns can be filed on various platforms, including the official Income Tax Department portal and third-party services like TaxBuddy, ClearTax, and Tax2Win. While the government portal is free to use, platforms like TaxBuddy streamline the process with user-friendly interfaces, AI automation, and professional assistance for complex filings. TaxBuddy ensures a hassle-free, error-free filing experience, with the added benefit of post-filing support.
4. How does TaxBuddy support TDS compliance?
TaxBuddy ensures that TDS (Tax Deducted at Source) compliance is made easy for its users. The platform automatically calculates the correct amount of TDS based on your income, deductions, and applicable rates. It also generates the necessary forms and helps you verify that TDS has been properly deducted and reported. TaxBuddy tracks the TDS credits reflected in your account and guides you through any adjustments needed, ensuring you meet your tax obligations and avoid penalties.
5. How can I avoid receiving an income tax notice for TDS errors?
To avoid receiving an income tax notice for TDS errors, it’s essential to ensure that TDS is deducted correctly and deposited on time. Regularly verify the TDS details in your Form 26AS and cross-check them with the amounts reflected in your tax return. If you identify any discrepancies, it’s important to file an updated return before the end of the assessment year. TaxBuddy helps in this process by providing clear guidance and verifying that all TDS credits are correctly reflected in your return.
6. Is the TDS rate the same for NRI landlords as for resident landlords?
No, the TDS rate for NRI landlords is higher than that for resident landlords. For NRI landlords, the TDS rate on rental income is set at 31.2%, regardless of the rent amount. In contrast, resident landlords typically have a lower TDS rate, which depends on the amount of rent paid. This higher rate for NRIs is designed to ensure tax compliance on income earned in India.
7. What happens if I miss the TDS deduction deadline?
If you miss the TDS deduction deadline, the tax authorities charge interest on the unpaid TDS amount at a rate of 1% per month from the date the tax was due until the date it is paid. Additionally, penalties may apply for non-compliance, which can significantly increase the financial burden. It’s important to ensure that TDS deductions are made on time to avoid both interest charges and penalties.
8. Do I need a TAN to deduct TDS for resident landlords?
No, you do not need a TAN (Tax Deduction Account Number) to deduct TDS for resident landlords. Under Section 194IB of the Income Tax Act, tenants who are paying rent to a resident landlord are not required to obtain a TAN. However, tenants must still ensure that the TDS is correctly deducted and paid to the government. For NRI landlords, a TAN is required to deduct and remit TDS.
9. Can I claim a refund for excess TDS deducted?
Yes, you can claim a refund for any excess TDS deducted by filing a return of income. If the TDS deducted exceeds your actual tax liability, you can request a refund of the excess amount by including it in your tax return. After processing your return, the Income Tax Department will issue the refund. TaxBuddy assists in this process by accurately calculating your TDS credits and ensuring that your tax return reflects the correct amount.
10. What is the penalty for not filing TDS returns on time?
The penalty for failing to file TDS returns on time is ₹200 per day. This penalty is applicable for each day of delay in filing, starting from the due date until the return is filed. However, the total penalty is capped at the amount of TDS that should have been deducted and deposited. Failing to file TDS returns on time can result in a significant financial burden, so it is essential to file within the prescribed timelines to avoid penalties.
11. How do I issue a TDS certificate to my landlord?
To issue a TDS certificate to your landlord, you must generate Form 16C for resident landlords and Form 16A for NRI landlords. These certificates must be provided to the landlord after the TDS has been deposited with the government. Form 16C is issued for tax deducted under Section 194IB, while Form 16A is issued for other types of TDS. These certificates serve as proof of the tax deducted and deposited on the landlord's behalf.
12. Can TaxBuddy assist with TDS return filing?
Yes, TaxBuddy offers expert assistance with TDS return filing, ensuring compliance with all applicable tax regulations. TaxBuddy helps you accurately calculate TDS, generate necessary forms, and file the TDS returns within the required timelines. Whether you're a resident or NRI landlord, TaxBuddy ensures that your TDS obligations are met efficiently, reducing the risk of errors and penalties. The platform provides complete guidance and support to help you navigate the TDS filing process seamlessly.
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