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
Under Construction Flat Booking Finds Tax Deduction Under Time Constraints
If a buyer makes a transaction to book an under-construction flat and if he acquires it within the three-year period of the sale of his old house, then he is entitled to a tax deduction, says a ruling from the Mumbai bench of the Income-tax Appellate Tribunal (ITAT). If an apartment is booked in an under construction project than it must be viewed as a method of constructing residential tenements, says the December 18 judgment.
That means if the buyer uses the entire gain from the transaction to buy another house within two years or construct another house within three years. The two- and three-year period applies even if the buyer bought another house a year before selling the first one. But the property should have been bought in the name of the seller.
It is mandatory that within a period of two years after or one year before the date of transfer of old house, the taxpayer should construct a residential house or acquire another residential house within a period of three years from the date of transfer of the old house. The date of receipt of compensation will determine the period of acquisition or construction in a case of compulsory acquisition.
This exemption is effective and can only be claimed in respect of one residential house property purchased/constructed in India. In the case of multiple house purchases or constructions, the exemption under section 54 will be available in respect of one house only. Any purchases made outside the country does not fall under any kind of exemption. Section 54 gives relaxation in such cases by providing relief to the taxpayer who sells his residential house and acquires another residential house from the gained capital.
After the sale of an asset, the difference between the buying price and the selling price is a capital gain or a capital loss. These are further classified as long-term or short-term. If a property is held for 24 months or less, with effective from 2017-18, then that asset is treated as Short Term Capital Asset. Then an investor can make
treated as Long Term Capital Asset. Then only a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) can be made on that investment.
ITAT agreed that booking of a new flat in an under-construction apartment should be considered as a case of “construction” and not “purchase”, hence following the earlier decisions of the Bombay high court and the tribunal itself. Further ITAT allowed the fact that the construction can began prior to the date of sale of the old asset. Same was stated in the earlier judicial decisions of the Karnataka high court and Ahmedabad ITAT, that the date of commencement is not relevant but it is the completion of construction that comes in relevance to section 54.
HDFC and Quikr Make A Deal
According to a deal between HDFC and Quikr, a stake of more than 3 percent will be given to the mortgage giant in return to its transfer of offline and online real estate brokerage business to the classified ads platform.
After acquiring Commonfloor in 2016 Quikr already has a major presence in online real estate broking.
“Most of the searches for real estate are moving online. Quikr has a much bigger presence online. Through this deal, we are partnering Quikr in the broking business,” said HDFC MD Renu Sud Karnad. According to her, this deal will strengthen Quirks position with offline support.
The deal suggests that HDFC will transfer to Quikr its entire shareholding in HDFC Realty, a real estate brokerage platform, and HDFC Developers, which runs the HDFC RED online platform.
Karnad added that the deal expects Quikr to generate home loan leads for HDFC. The transaction consists of a co-branded alliance between both parties and the HDFC brand will continue to be used online for a year.
The e-real estate classifieds platform HDFC RED has around 7,000 project listings and generates traffic of over 80,000 unique visitors per month. HDFC Realty has a 300-member, in-house sales team, and 7,000-strong nationwide broker network. Avendus Capital was the exclusive financial adviser to Quikr while Kotak Investment Banking acted as the exclusive financial adviser to HDFC on this.
30 million monthly users make Quikr India’s largest classifieds platform. It runs multiple vertical businesses across real estate, automobiles, jobs, services, and goods. The Quikr Home, its real estate vertical generates 3.5 million monthly unique visitors.
Both companies intend to work closely and conduct analytics and identify potential homebuyers, and therefore home loan customers, early in their home-buying journey. Quikr founder and CEO Pranay Chulet said, “We see great synergies between Quikr and HDFC as we start working together to bring a seamless online-to-offline platform to developers and consumers.”
Retaining The Sustainability: GRIHA Launches Star Rating For Urban Homes
Green Rating for Integrated Habitat Assessment (GRIHA), is the National Rating System of India, a Sanskrit word meaning – ‘Abode’. Human architecture has always consumed resources in the form of energy, water and material from the environment. From their construction to operation, these habitats absorb the resources throughout their life cycles, emitting wastes in the end. This emission could be direct in the form of municipal wastes or indirect emission into the atmosphere, such as from electricity generation. Hence GRIHA was formed to reduce an architecture’s resource consumption, waste production and overall environment impact up to certain national acceptable limits.
In attempt to quantify all these aspects, like energy consumption, waste generation etc. GRIHA tries to manage, control and bring down the respective to the best possible limit. Being a rating tool, it helps people to assess the performance of their respective projects against the national benchmarks.
Hence it becomes an evaluation of the environmental performance of an architecture on a holistic level. Covering its entire life cycle, this evaluation provides a specific standard for a ‘green building’. This rating system aims to strike a balance between established institutions and emerging concepts, on a national as well as the international level.
The process starts with an online submission of documents according to the criteria. Then a team of professionals and experts from GRIHA Secretariat takes a site visit for the evaluation of the building. There are four different sections categorized by 34 criteria in GRIHA rating system. Some of them are site selection and site planning, conservation and efficient utilization of resources, building operation and maintenance, and innovation.
Sanjay Seth, CEO, Green Rating for Integrated Habitat Assessment (GRIHA) Council says, “A rating between one and five stars is being provided, helping the costumers to know about the sustainability of the houses”.
According to the Union Minister, Hardeep Singh Puri, the climate resilient and sustainable buildings are the need of the hour. As the government is aiming to construct around 1.2 crore houses for the urban poor under the affordable housing scheme.
In one of his keynote addresses, Andreas Baum, Ambassador of Switzerland to India and Bhutan said that the Indo Swiss collaboration is operating with the Indian Bureau of Energy Efficiency in the development of guidelines for energy efficient housing.
“At present India is witnessing a rapid urbanisation, if each building becomes greener than the last one, then we have a huge opportunity and hope for our country. We need to look beyond the conventional methods of building, in order to provide our citizens with a good quality of life. Hence, GRIHA gains important in meeting our national goals with respect to a sustainable society”, says Dr Ajay Mathur, director general, TERI & president, GRIHA Council.
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