IT Department issuing Notices to Salaried Taxpayers who claimed HRA Exemptions

Attention Salaried Taxpayers! Paying monthly Rent more than Rs.50,000 and not doing TDS compliances? Be cautious of your actions.

The Income Tax Department has started issuing Notices to Salaried Taxpayers who have claimed HRA exemptions in their Income Tax Returns but have not deducted TDS on rent payments exceeding Rs.50,000.

Here is the extract of such notices as a sample:

“Dear Taxpayer, It is observed that you have claimed an exemption for HRA under section 10(13A) of Rs.900000, Rs.1300000 and Rs.700170 in your ITR for A.Y. 2022-23, AY 2023-24 and AY 2024-25 respectively. However, no TDS has been deducted on the rent paid. It is requested that the claim may be verified and any mistake, if found, may be rectified by filing the updated ITR by 31.03.2025.”

What do you need to know about TDS compliance while paying a monthly rent of more than Rs.50,000?

Applicability: It applies to any individual or HUF (not subject to tax audit) who pays rent more than Rs. 50,000 per month to a resident owner. If the owner is a non-resident, then Section 195 applies.

TDS Rate: TDS will be deducted at a rate of 5% of the rent amount until September 30th, 2024, and 2% beginning October 1st, 2024, under Section 194IB. If the landlord does not give PAN, TDS will be deducted at 20%.

Due Date for Payment: The yearly TDS payment is due 30 days after the end of the final month of the fiscal year in which rent was paid (March), or within 30 days of the end of the last month of the tenancy if the house is vacated before that date. It implies you can deduct and pay TDS in Form 26QC for all months of FY 2024-25 by April 30, 2025, to be compliant.

Form 26QC: Both payment and return filing will be completed in one challan cum Return Statement in Form 26QC within 30 days of the end of the relevant month in which rent was paid. This filing does not require a TAN, as do normal TDS returns.

Form 16C: Tenant must provide a TDS credit certificate in Form 16C to the landlord within 15 days of filing Form 26QC.

Joint Ownership: In the case of landlords in joint ownership, the Rs.50,000 limit will be applied individually to each owner’s portion.

For example, if the total rent is Rs.60,000 but it is paid to two joint owners in a 50% ratio, i.e. Rs.30,000 to each joint owner, no TDS compliance requirements will apply.

Non-compliance: Late deduction of TDS incurs a 1% interest rate, whereas late payment of TDS incurs a 1.5% penalty.

In addition, under Section 234E of the Income Tax Act of 1961, a late fee of Rs. 200 per day applies to Form 26QC that is not completed on time. An additional penalty can also be imposed with a minimum sum of Rs.10,000, which can be enhanced to Rs.100,000 (Section 271H).