To reduce the compliance burden, the Finance Ministry has further proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act.
In a move that could curb false house rent allowance (HRA) claims, payment of house rent exceeding Rs 50,000 a month has to be accompanied by a 5 percent tax deduction at source (TDS).
“In order to widen the scope of tax deduction at source (TDS), it is proposed to insert a new section 194-IB in the Act to provide that Individuals or a HUF (other than those covered under 44AB of the Act), responsible for paying to a resident any income by way of rent exceeding Rs 50,000 for a month or part of month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon,” the Finance Ministry has said in memorandum to the Union Budget has said.
It has also been proposed that “tax shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy if the property is vacated during the year, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.”
The amendment will come into effect from June 1, 2017.
Amit Maheshwari, Managing Partner, Ashok Maheshwary & Associates said the move could create problems for many who are claiming false HRA benefits. “Deducting TDS on HRA would mean there would be a trail which can be easily examined by the tax department. Earlier requirement of giving PAN number of landlord while claiming HRA benefits could be misused,” Maheshwari told Moneycontrol.
Presently, the Income Tax Act provided for deduction of tax at source at the time of credit or payment of rent to the account of the payee beyond a threshold limit. Further, an Individual or a Hindu Undivided Family (HUF) who is liable for tax audit under section 44AB for any financial year immediately preceding the financial year in which such income by way of rent is credited or paid shall be required to deduction of tax at source under this section. Thus, an Individual and HUF, being a rent payer (other than those liable for tax audit) are out of the scope of section 194-I of the Act.To reduce the compliance burden, the Finance Ministry has further proposed that the deductor shall not be required to obtain tax deduction account number (TAN) as per section 203A of the Act.