TDS liability of a tenant & penalty for rent default

Tax related liabilities on rent are not limited to landlords. Income tax (I-T) laws mandate tax deduction at source (TDS) by tenants (applicable to individuals and Hindu undivided families, or HUFs) and deposit it with the I-T department under certain conditions. The amount of TDS to be deducted and the conditions pertaining to this are largely defined under two sections:

Section 194I: It is applicable to individuals and HUFs whose turnover from business or profession exceeds Rs. 1 crore (in case of business) or Rs. 50 lakh (in case of profession) during the previous financial year and when the landlord is an Indian resident. The threshold limit for TDS in this case is Rs. 2.4 lakh per annum. The rate at which TDS is required to be deducted is 10%.

Section 194IB: It is applicable to individuals and HUFs who are not covered under section 194I and when the landlord is resident. The threshold limit here provided is Rs. 50,000 per month. The rate at which TDS is required to be deducted is 5%. TDS shall be deducted in the last month of the previous year or the last month of tenancy (in case the property is vacated during the year), whichever is earlier.

In cases where the rent is paid to a non-resident, 30% TDS is to be mandatorily deducted under section 195 without any threshold rules on how much rent is paid and the income of the tenant.