Renting out a property in India has several tax implications that the tenant and landlord should be aware of. TDS or Tax Deducted at Source, is one such provision. The government implemented it as a tax collection mechanism to streamline the process and prevent rental income tax evasion. 

Understanding the nature of TDS on house rent in India from various perspectives is thus necessary if you are involved in rental properties. In this blog, we will look at TDS and its requirements from the standpoint of residential property. 

What exactly is TDS?

TDS is the tax deducted from the source of income. For example, if A has to pay B a specified amount, A must deduct tax at the origin, i.e., TDS, and transfer it to the Central Government’s account. The amount deducted will then be credited to B by the provisions of the Income Tax Act. 

Rent Taxes in India 

Property in India pays taxes under various sections of the Income Tax (IT) Act 1961. As a result, whether you sell or lease your property, you will benefit from a tax break. Deductions occur at the source in taxes like the tax on property sales in India or income tax on house rent. 

Section 194-I of the IT Act addresses the provisions for rental income. Tenants should deduct TDS and remit it to the central government account, which the lessor/landlord is entitled to receive as a credit if the TDS certificate or Form 26QC is in order. 

However, the tax treatment depends on several factors, including the nature of the property, its use, rental income, and an individual’s tax status. 

The nature of the properties has fallen into the following categories under the same provisions: 

Residential Properties

House Properties used for rental purposes are, naturally, subject to income tax on house rent in India. You can deduct expenses like municipal taxes and mortgage interest to calculate taxable rental income. 

Tax Deducted at Source on the Rent 

Though TDS is an essential term in the IT Act, a few people understand how taxes accumulate at the source. The Indian government enacted this provision to ensure that rental income is accurately collected. Here are a few things that both residents and NRIs should be aware of.