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5% TDS For Tenants Paying Rs 50,000 Rent

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Tenants Paying Rs 50,000 5% TDS on Rental |RealtyNxt

As per the Finance Act, 2017 under the relevant Income Tax (I-T) Act – section 194-IB, it makes the individuals responsible for tax deduction at source (TDS) on rental payments which exceed a certain amount. From 1st June, any person who pays more than Rs 50,000 rent is required to deduct tax at source at 5%.

The rent in the metro cities is excruciatingly high. Most people will now have to without tax and submit it to the government with relevant documents. The good news is that the compliance formalities have been simplified for the tenants. On 8th June, Central Board of Direct Taxes (CBDT) issued a notification related to compliance requirements.

Tax experts are cautioning people against revising their rent agreement in the middle of the tenure just to escape TDS duties. This can turn out to be their loss. In order to avoid tax, many landlords will now like to revise the agreements and split the monthly rent into rent and furniture hire rent. Not only can it catch the authority’s attention, but one will also have to prove the furniture hire is realistic and legal.

Amarpal S Chadha, Partner at EY India said, “Revising an agreement mid-way is bound to catch the wrong attention of the tax authorities and should not be undertaken. Only if an individual is entering into a new agreement and is actually paying for furniture hire could the drawing up of two separate agreements be considered. Besides, the charges for furniture hire need to be realistic.”

“There have been instances where people trying to wriggle out of their TDS responsibilities resort to various devices, such as splitting up of the rent agreement. This is clearly done with a view to violate the law and I would never advise anyone to take such a step. Further, several pitfalls are involved. First, there should be actual assets that have been rented out to justify the payment towards furniture hire. Second, the agreement should bring out a list of such assets. Third, the payments towards such assets should be reasonable and justified. Obviously, it would be difficult to prove that payment towards furniture hire of Rs 45,000 is reasonable if the rent for the flat itself is just Rs 40,000. The TDS authorities would definitely take a strong view of such an arrangement and take action against the tenant who has paid rent without deducting tax at source,” said Ameet Patel, a partner at CA firm Manohar Chowdhry & Associates.

Chadha adds, “Tenants should also keep in mind that non-compliance entails penalties. Non-deduction of tax results in a levy of interest at 1% per month; it is 1.5% per month for non-payment after deduction. Further, non-filing of required statement would attract a penal fee of Rs 200 per day for the period of delay.”

How to comply with the new norms?

Some compliance-related concessions have been announced by the government. Individual tenants who have to meet TDS obligations are absolved from getting the Tax Deduction Account Number (TAN). Also, the tax is to be deducted once a year and not monthly. Chadha says, “The tax is required to be deducted at the time of credit or payment (whichever is earlier) of the rent, in the last month of the financial year, or the last month of the tenancy if the flat is to be vacated during the year. Since individuals would not be maintaining books of accounts, the tax would typically be deducted at the time of payment.”

An example can help understand this better, if Priya has to pay Rs 60,000 rent each month until the financial year end I.E. 31st March 2018. The rent from 1st June to 31st March 2018 comes to 6 lakh rupees. The 5% TDS comes to 30,000. Thus Priya will deduct Rs 30000 and pay the remaining Rs 30000 as rent for the last month to the landlord.

Some other important rules:

1. The deducted tax needs to be paid within 30 days from the end of the month in which it was deducted.

2. This can be wired to the RBI or SBI or any authorized bank. Form 26QC (which serves as a challan-cum-TDS) is to be filed electronically through the NSDL portal.

3. The NSDL portal will also give form 16C, which is to be downloaded and given to the landlord. The landlord should get this within 15 days from the due date of filing form no 26QC.

4. Both form 26QC and 16C ask for details like name, address, PAN, contact details of the tenant and the landlord. Besides that, other crucial information like period of tenancy, rent amount and TDS details are also needed.

It is also worth knowing that if rent is being paid to a non-resident, then section 194-IB doesn’t apply. Withholding tax payments to non-residents fall under Section 195 and applicable tax rates apply.

Also Read:  Useful Tips While Buying A New Home – Part 1

Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

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The state of Maharashtra has added 232 cities to the existing 142 which makes it 373 cities under the Pradhan Mantri Awas Yojana Scheme (PMAY).

The officials at the housing department feel that this step will aid the government take up more projects under the PMAY scheme.

Sachin Kulkarni, Builder shared his concerns over the lack of coordination between the department in executing PMAY projects. He said, “This is a good sign. However, the PMO’s seriousness in promoting HFA is diluted by the time it reaches the authorities. Apart from collecting application from interested beneficiaries, nothing has moved on the ground in urban centres. I hope that this initiative moves on fast track”.

Maharashtra CM Devendra Fadnavis recently states that the in order to create more housing stock the state’s Slum Rehabilitation Authority scheme be brought under PMAY so that it can receive the subsidy to create more affordable housing. He clearly mentioned that the government intends to create more housing stock and it was taking various initiatives and making policy changes for it.

Also Read- Affordable Housing To Get A Boost With PMAY’s Scope To Be Extended To Private Lands

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Regulations

Real Estate Sector May Fall Under GST What Does It Mean For Buyers?

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One after the other the real estate sector has witnessed massive policy and law changes in its systems. Nonetheless, the tide has not passed yet. The GST council will take up a proposal to bring it under the uniform nationwide levy.

As the industry is still recovering from the RERA Act, the finance minister, Arun Jaitley said that there is a strong case to include real estate in the new indirect tax regime. He said this last week and also mentioned that GST Council will discuss it in November.

At present, the home buyers are paying 12 percent GST on under-construction properties. This percentage includes two taxes which are stamp duty and registration. The rate of which varies in each state but GST will make them uniform.

Santosh Dalvi, KPMG India partner (indirect tax) said, “If the entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The stamp duty with registration and GST comes to approximately 18 percent for under construction properties. He further said, “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices”.

While agreeing, Bipin Sapra, EY partner (indirect tax), added, “It’s going to be a test for the government”.

Developers also pay taxes on raw materials. However, unlike other businesses, they don’t get any tax refunds through input credit. GST taxes every stage of the business activity to better compliance and compensates for it by permitting refunds.

Anuj Puri, Anarock Property Consultants chairman, said “By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” He added that it would make homes cheaper for buyers.

According to Sapra, it will depend on the tax rate applicable.

Niranjan Hiranandani, co-founder of Hiranandani Group said, “Real estate under GST ambit means consumers will only have to pay one final tax.” He stated that with the commencement of RERA it brings transparency and GST would reduce the burden in terms of taxes payable while buying the home. He concluded, “Not only will this create positive sentiment but it should also boost actual sales”.

Also Read: Affordable Housing Is The Changing Face Of Indian Real Estate

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Regulations

Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

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In a move to protect home buyers from builders declaring their bankruptcy, the Insolvency & Bankruptcy Board of India (IBBI) has amended rules which make it necessary for any company to showcase how they have dealt with interests of all stakeholders. This is directed towards companies like Jaypee Infratech and some of the entities of Amrapali Group.

The regulator has informed about the revised rules last week. This will ensure that banks and other creditors do not get away by protecting their interests at the expense of others who are impacted by the action.  Banks are part of the creditors’ committee. They become an important decision-making body after a company is admitted for bankruptcy.

An expert bankruptcy lawyer said, “The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests.”

According to the new law that was enacted last year intends to speed up the resolution process in a period of 180 days, with a possible extension of 90 days. This will be done by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare a plan. As per the law, an information memorandum will be finalized if the creditor’s committee is willing to take applications from other interested companies to take over the company.

The insolvency experts say that the law providing for the plan binds corporate debtor (the company) and its members, employees, guarantors, and creditors, other stakeholders involved in the resolution plan. However, there are no obligations mentioned in the rule to give any treatment to the stakeholders other than the financial creditors (banks) and operational creditors, which includes vendors and others who may have dues.

The National Company Law Tribunal, based on the comfort provided by the revised rules, will choose the final resolution plan based on bids that are received. The lawyer further said, “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time.”

Also Read: Tanvi Group Fail To Deliver Homes And Declare Bankruptcy

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