TDS On House Rent
If you pay more than ₹50,000 in rent each month, there’s a rule about deducting Tax Deducted at Source (TDS) before you pay your landlord. Since October 1, 2024, this TDS rate is 2% of the rent.
However, before October 1, 2024, the TDS rate was higher, at 5%. Because of this recent change, some people are getting confused. We’ve seen more cases where tenants who should only be deducting 2% TDS are mistakenly deducting 5% instead.
So, starting in October, the landlord will only get credit for the 2% TDS that should have been deducted. But if you, as a tenant, accidentally deducted 5% TDS, that extra 3% becomes a bit of a mystery – it’s just sitting there.
- Ask the Tax People for Your Money Back: You can file for a refund of that extra 3% TDS from the income tax department.
- Talk to Your Landlord: You can also ask your landlord if they can adjust things. Maybe they can account for that extra 3% in a future rent payment.
If you want to know exactly how to get that extra TDS money back, the Income Tax Department has a helpful guide on their TRACES website. It’s like an online tutorial that walks you through the whole process step-by-step. This guide is specifically designed to help people like you understand how to claim a refund when too much TDS has been deducted.
TDS Refund Process: Getting Back What's Yours
So, the Income Tax Department’s new online guide explains that if you’re the one who deducted the TDS (usually the tenant), you’re the one who needs to apply for any refund, and this applies to the financial year 2007-08 onwards.
A tax expert, Mayank Mohanka, also explained that the TDS rule for rent over ₹50,000 changed on October 1, 2024. It went down from 5% to 2%. Because some tenants didn’t realize the rate changed, they ended up deducting and paying the higher 5% TDS for the entire year of 2024-25 when they filed their yearly paperwork (Form 16C and challan 26QC) – even for the months after October when it should have been 2%.”
Another expert, Sudhir Kaushik from TaxSpanner, explains that the landlord will get credit for the amount of TDS that was actually deducted and paid, even if it was the wrong, higher amount. If you deducted 5% instead of the correct 2%, you can try to deduct less in the following months of the same financial year to make up for the extra you already paid. However, if your landlord doesn’t agree to this adjustment, or if you can’t adjust it in the coming months, then you’ll need to use another way to get that extra money back.
According to Tanna, if you’re an individual tenant deducting TDS on rent, the only way to get back any extra TDS you’ve paid is to ask for a refund. Unlike some other types of taxpayers, you can’t simply adjust this extra amount in your payments for the current or next year.
Tanna also shared an experience where, after applying for a refund of excess TDS on a property, they were asked to provide more paperwork, like a guarantee document (indemnity bond) and bank statements.
Getting Your Extra TDS Back: Key Things to Keep in Mind
If you’re looking to get a refund for too much TDS deducted from your rent, here are some important things you need to know:
- Digital Signature is a Must: To even ask for the refund online, the person authorized to do this needs to have their digital signature registered on the TRACES website (that’s the Income Tax Department’s online system for TDS).
- Your Details Need to Match: The PAN (your tax ID) you used when you got your TAN (the deductor’s ID) and what’s on your TRACES profile should be exactly the same and shouldn’t be empty.
- No Pending Tax Bills: You shouldn’t have any unpaid tax bills associated with your TAN or any other TANs linked to your PAN.
- Your Own Tax Should Be Clear Too: You also shouldn’t have any outstanding tax bills under your own PAN.
- Limited Challans Per Request: When you file for a refund, you can include a maximum of five payment slips (challans) in one request. If you have more than five, you’ll need to submit a new refund request.
- Refund Amount Limit: You can’t ask for more money back than what’s actually available as unclaimed in the payment history.
- Minimum Refund per Challan: For each individual payment slip where you overpaid, the unclaimed amount needs to be more than ₹100 to be eligible for a refund request.
- Process Your Paperwork First: Make sure that all the TDS statements where you’ve used that particular payment slip have been processed by the tax department before you try to claim a refund for it.
Landlord Only Sees 2% TDS Credit, Regardless of Your 5% Deduction
According to Mohanka, the law says that whatever amount of TDS you, as a tenant, actually deducted and paid (even if it was the wrong, higher amount) should show up in the landlord’s tax records (Form 26AS). The landlord should then be able to claim this full amount when they file their own income tax return.
But here’s the weird thing: in the landlord’s tax records, it’s only showing the TDS at the correct 2% rate, not the higher 5% that might have been paid. This seems to be a mistake in the TRACES system, which was updated for the new 2% rule. Even when trying to correct the TDS certificate (Form 16C), there’s no way to manually enter the actual higher amount that was deducted.
This problem with the tax system is causing unnecessary trouble for landlords. It needs to be fixed quickly so that their tax records show the full amount of TDS that was actually paid, not just the supposed 2% rate.
Claiming Your Overpaid TDS: Here's What to Do?
- Start by logging into your account on the TRACES website. After logging in, look for the “Statement Payment” tab and click on “Request for Refund”.
- After you’ve successfully logged in to the TRACES portal, navigate to the “Statement Payment” section. There, you’ll find the “Request for Refund” option – click on it.
- Now, you’ll need to enter the details of the payment slip (challan). You’ll also be asked if this payment relates to a legal appeal or a special tax dispute settlement scheme (Vivad se Vishwas). If it does, you’ll need to enter the reference number you got from the relevant authority.
- Next, you’ll need to give your bank account information so they know where to send the refund money.
- This is the verification page. Just click “Proceed” to continue with your TDS refund request.
- You’ll see a confirmation page. If everything looks right, click “Submit Refund Request” to finalize your request.
- Now, you’ll need to use your “Digital Signature Certificate” to confirm it’s really you making the request.
- You’ll get a form called “Form No. 26B Acknowledgement.” You need to print this out, sign it, and send it to the tax officer within 14 days. Keep in mind that if your refund is for more than ₹50 lakh, it will need extra approval.
- You can check the status of your request by going to the “Track refund Request” section on the website.
- In the “Track Refund Request” area, you can search for your refund status using either “Option 1” or “Option 2” to see where it is and any notes about it.