TDS to rental and contract work: How small taxpayers can avoid fines

Copyright © HT Digital Streams Limit all rights reserved. Money Shipra Singh 8 min Read April 21, 2025, 03:15 IST Revenue Laws Mandate to disclose the sale of assets in India by NRIs in the ITR, even if the appropriate tax was paid by TDS. (Beeld: Pixabay) Summary Every year, many individuals face penalties and interest costs due to missed steps in compliance with TDS, which often stems from limited awareness. Here are some important TDS provisions that small taxpayers should be aware of to prevent them from paying big fines when a young couple in Mumbai bought an apartment from a seller living outside India, they ensured that they fully complied with the Rules on Tax at the Source (TDS). They deducted the tax at the source at the higher rate of 31.2% (including CESS) applicable to non-resident Indian (NRI) sellers and submitted it to the tax authorities in time. However, they missed one extra step: submitting an e-TDS return. As a result, the couple, who did not want to be mentioned, were slapped with a fine of £ 80,000. Many individuals like this couple are facing penalties and interest costs every year due to missed steps in compliance with TDS, which often result from limited awareness. After submitting the TDS amount, the deductor must submit the return within the last date of the term in which TDS is deducted (July 31, October, January and March). The fine for this default is a serious £ 200 a day, on the TDS amount. The TDS rate in the case of NRI real estate sellers is quite high at 31.2%, which means the cop equals the TDS amount for the £ 200 daily fine, the tenant is not really if the landlord is an NRI. The couple had seven months late in the submission of e-TDs, which had up to around £ 40,000 for both individuals. As they bought the property together, both had to subtract TDs and submit the return separately. Therefore, they both paid a joint fine of £ 80,000 for this slip. Individuals and HUFs who are not liable for tax audits were only brought under the TDS in 2013 with the launch of Article 194-SIA dealing with tax deducted at the purchase of immovable property. Gradually, more portions on other types of payments were added to broaden the tax base. Coins contain some important TDS terms for which small taxpayers should be aware to avoid fines through their nose. If the landlord is an NRI, a tenant of an NRI lease is a full-time job with multiple compliance. The tenant must receive brown (tax deduction and collection account number) and 31.2% TDS (includes Cess; appropriate surcharge also added each month) on the rent, regardless of the rental amount. It must be deposited with the Income Tax (IT) Department by 7th of the next month using Form 27Q. Next, the tenant must submit a quarterly e-TDs return. “Once the return has been submitted, the tenant must generate and issue a form 16A to the NRI Learer -this is the TDS certificate that is deducted and deposited,” says Ajay R. Vaswani, founder, macawed and company, chartered accountants. “In contrast, when rental is paid to a resident landlord of over £ 50,000 a month, the tenant can simply fill in 26qc online, pay 5% TDS once a year and finish-no-brown, no quarterly returns, no form 16A, but for NRI letters, even a simple rental agreement becomes a complete TDS compliance project,” said. The difficult part is that the onus to verify whether the landlord is a resident or non-resident is with the tenant. “The tenant has to ask for a copy of self -disorder. If it appears later that the landlord was an NRI and taxes were not properly deducted, the tenant carries most,” Vaswani said. Also read: New TDS Rules for Partnership Firms: What you need to know TDS on contractual work When a person or entity involves a contractor for any kind of work, TDS will be deducted under sections 194c and 194m. 194C applies to all who are a contractor for construction, repairs or any other contractual services where the total payment is more than £ 1 lakh, in a year or a single payment is over £ 30,000. Chirag Wadhwa, owner of Wadhwa Chirag & Associates, said chartered accountants for individuals and Hindu -by -divided family (HUF) engaged in the business or profession, it is only when the annual turnover of their previous year is over £ 1 (in the case of business) or £ 50 lakh (for professionals). “In the case of any other entity, even if there is no audit requirement, TDS under 194c applies,” he said. It should be noted that TDS must also be deducted on oral contracts, even if there is no formal written agreement. “194c is attracted to even everyday payments such as advertising, courier, household services, pest control and catering,” Wadhwa added. TDS rate is 2% if the recipient is an entity and 1% if it is an individual. 194c compliance mainly affects small entities such as domestic operation, charities and small owners. For example, a small housing committee with less than 20 apartments may not have a full -time CA. Thus, the committee robbery will have to be voluntary to get Tan, which is compulsory for 194c TDS, and the TDS deposits each time a payment is made to the various contractors, such as security, horticulturist, for maintenance work, etc. What if a businessman hires a contractor to build his personal home? In this case, Article 194m comes in. TDS below 194m is for individuals and HUF who do not fall below 194c. “194 million applies under two conditions – individual or huf turnover is below the £ 1 crore/ £ 50 threshold, or even if it is liable for audit, but is a contractor for a personal purpose,” says Wadhwa. Thus, a businessman who builds his own home comes below 194 m because he/she meets the second condition. Bhawna Kakkar, CA and founder, Kakkar & Company, Chartered Accountants say Article 194c is well known among businesses, as CAS typically ensures the compliance with TDS during audits. However, Article 194m is followed less frequently. ‘It even applies to salaries if they make payments with high value for professional or contractual services. Since it is not a brown brown, and often arises in personal transactions, awareness and compliance, remain quite low. ‘ TDS under 194 million is deducted at 5% if the total amount of payments per year exceeds £ 50 Lakh. Some general contractual services that most individuals enter into, build a home, rent an interior decorator, pay a wedding planner or event manager, rent an advocate or any other professional, etc. ‘The £ 50 limit is per year and if it is breached, the payer must deduct TDS, even for the earlier payments (from the first payments, which must decrease the subsequent payments). Attached, Chartered Accountant in Bangalore. Kakkar said for both 194 and 194m, each deduction requires a corresponding TDS -release -filing. “For 194c TDS is deducted each time, your Form 26Q must submit quarterly, which reflects all payments and deducted TDS. 194m is a challenge deduction deduction that is submitted with TDS deposit. For this pan, it is sufficient for deductor as well as deductor.” Also read: Do you rely on rental income at retirement? Take these steps to protect yourself. The cost of non-compliance with failure to subtract TDs has serious fines. A monthly interest of 1% applies to non-division, 1.5% interest when TDS is deducted but not deposited, and for delays in the submission of e-TDS return or Challan CUM statement, £ 200 per day, on the TDS amount, until the return is submitted. These fines apply to all TDS terms. TDS non-compliance is a running risk, as the interest and fines are only slapped if the Income Tax (IT) Department is a default flag. “With the income tax division increasingly relying on data from different sources, including the state of financial transactions (SFT) that captures cash receipts above £ 2 lakh, such payments can easily be marked, which could possibly lead to the demand for tax and fine,” Kakkar said. However, in the case of NRIs, the effects of non-compliance are worse. “In the case of non-compliance, the tenant may become ‘judged-infault’. This means that the tenant can be forced to pay the entire TDS amount out of their own pocket, even if the rent has already been paid out,” Vaswani explained. In addition to the penalty interest and a daily fee of £ 200 for non-returns, tenants to NRI letters can also be imposed additional fine to the full amount of TDS under section 271C and even prosecution under section 276B for intentional default when the TDS is deducted but not deposited from the government, as per Vaswani. “Unless the landlord later pays full taxes and submits a return, the burden remains on the tenant.” Attached said that especially the £ 200 per day fee for non-Line’s default is quite expensive. He said that buyers of property regularly cough this fee for many of the previous installments in cases where they pay several installments when buying from a builder. “When a home, in terms of section 194ia, buys a home, the buyer must deduct 1% TDs on the total amount if it is more than £ 50 or more. Now, in case of several payments, the buyer must deduct the same and deposit using a Challan-CUM statement of TDS in Form 26QB for each installation, which will not be the final. Three years, which are limited on the TDS amount. Business news, market news, news events and latest news updates on live mint.