TDS Rate on Rent: Essential Tax Guidelines

The TDS rate on rent is critical for both tenants and landlords to understand, as it directly impacts how rental income is taxed and reported. By grasping these rules, individuals can ensure they meet legal requirements and optimise their tax obligations.

TDS on High Rental Payments

As a tenant, if you pay more than ₹50,000 per month in rent, you have a specific tax responsibility: to deduct 5% of your total annual rent as Tax Deducted at Source (TDS).

Steps to Comply with TDS Regulations:

1. Deduct TDS: Calculate and deduct 5% of your total annual rent. This is your TDS obligation.
2. Deposit TDS: It’s your duty to deposit the deducted TDS amount with the government.
3. File Form 26QC: You need to fill out and submit Form 26QC to formally report the TDS you have deducted and deposited.
4. Issue Form 16C to Landlord: Provide your landlord with Form 16C, which confirms the TDS deduction and deposit.

Also Read: TDS on Rent Increased: Budget 2025

Income Tax Deductions on Rent for Tenants

If you are a salaried individual residing in rented accommodation, there are tax benefits available to you regarding the rent you pay. These benefits are primarily provided through the House Rent Allowance (HRA) and Section 80GG.

House Rent Allowance (HRA) Explained

HRA is a component of your salary designed to assist with rental expenses. To avail of this deduction, you must reside in the rented premises and pay rent. The deduction amount is calculated based on the lesser of the following:

1. The actual HRA received.
2. The excess of rent paid over 10% of your basic salary.
3. 50% of your basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% for other cities.

Section 80GG: Tax Relief for Tenants Without HRA

For those who do not receive HRA, Section 80GG allows deductions on rent paid. This is particularly beneficial for self-employed individuals or employees whose employers do not provide HRA.

Eligibility for Section 80GG

• You must reside in rented accommodation.
• You or your immediate family should not own residential property in the locality of your rental home.
• You should not be availing of HRA.

Deduction Calculation under Section 80GG

The least of the following is deductible:

• ₹5,000 per month (up to ₹60,000 annually).
• Rent paid less 10% of your total income.
• 25% of your total income.

Suggested Read: TDS on Rent Limit Rules

Tax Rules for Landlords on Rental Income

Landlords need to pay taxes on the rent they collect. But, you can also save some tax money with a few smart moves. Let’s break down the basics of how this works.

Calculating Your Property’s Gross Annual Value (GAV)

First, you figure out your property’s Gross Annual Value. This is usually the higher amount between what you actually get as rent and what you might expect to get, based on the market rate. If your property was empty for some time, the GAV would be less for that period.

Tax Deductions for Landlords

Landlords get special deductions that help lower their taxable income:

1. Standard Deduction of 30%: You can reduce your taxable income by 30% of your net annual value (this is your total rent minus any property taxes you paid). For example, if your rent is ₹3,00,000 and property taxes are ₹30,000, your net is ₹2,70,000. Taking away 30% (₹81,000) means you only get taxed on ₹1,89,000.
2. Deduction on Home Loan Interest: If you bought or built your rented property using a home loan, the interest you pay on that loan is deductible. There’s no cap on this deduction if the property is rented out.

Suggested Read: Rental Agreement Essentials

What Happens When Your Property Is Vacant?

If no one rented your property for a while, your GAV drops. This means you pay less tax.

Dealing with Security Deposits

Normally, security deposits aren’t taxed right away unless they’re non-refundable or used as part of the rent. If they are used for rent, then that amount is added to your taxable income.

Suggested Read: How to File Rental Income in ITR

Sharing Rental Income in Joint Property Ownership

When a property is jointly owned, the rental income must be divided among the co-owners according to their respective shares in the property. Each owner is then eligible to claim tax deductions on their portion of the income under Section 24. This arrangement allows each co-owner to reduce their taxable income by applying these deductions to their share of the rent collected, ensuring that each individual’s tax liability is accurately reflected by their actual investment in the property.

Suggested Read: How to Save Rental Income Tax?

Conclusion

It’s essential for both tenants and landlords to be aware of the tds rate on rent to meet their tax obligations effectively. Keeping this rate in mind helps ensure that all parties handle their rental transactions within the legal frameworks.

Frequently Asked Questions