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Advance rent paid for next 5 years and tds thereon-issues

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)

14 December 2011

Friends

L (landlord) and T(tenant) entered into a rent agreement where L will pay 1,00,000 per year to T for 5 years from April 2012.

L made the advance payment of 5,00,000 in dec 11 to T and accordingly deducted TDS under section 194I.

Now what will T do ?

1) Will T claim the entire TDS in FY 1112 as refund as the TDS will be reflected in 26AS for this year only and not other years -- and pay tax in each next 5 FYs

2) Or claim TDS in each next FY though there is no TDS reflection 26AS for those years. In that case unless there is scrutiny assessment, how will AO react ?

T has to show 1,00,000 in each FY for 5 years as per accounting standards, practices, conventions.

Regards,

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6 Replies

CA Maulik Rachh (-) (114 Points)
Replied 14 December 2011

When Tax has to be Deducted at Source

Tax is to be deducted either at the time of credit of such sum to the account of the payee, or at the time of payment thereof, whichever is ealier. Even when the account is by any other name in the books of account of payer, it is treated as credit of such income to the account of the payee.

Section 194-I would require tax deduction on ``any income by way of rent''. Hence deposit, though described as advance, does not have the character of rent, till such time as it gets adjusted. The amount paid as advance or deposit is different from advance rent like the amount of rent paid for the ensuing month. Rent paid in advance is tax deductible as it has the character of rent, while rent deposit on the other hand is not so tax deductible

It assumes that Sec. 199 would not permit the entire amount of tax deducted at source and that the credit will have to await the offer of relative income in respective years and that the tax credit will be given in the respective years on the strength of the tax deduction certificate filed in the first year, so that the adjustment will be carried over to the next year.

There is no provision for withholding a refund to be kept in reserve for future adjustment. According to this circular, in the facts of the reader's case, if the lease is for five years, the reader has to await credit according to the Circular for the five years on the basis of the certificate filed in the first year. If the lease is renewed, the adjustment will be further postponed.

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Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 14 December 2011

Thanks for your valuable response. My doubt is if L files online return and the case is disposed under 143(1) from bangalore where the ITO CPC invariably would check the Form 26AS credits, is it not difficult to claim TDS in next 5 years because there is no scope for expalining the local AO about the peculiar facts of the case and submitting the Form 16A.

How the dept would react when there is no 26AS figure in next 5 years. These days AO garnts TDS credit on the basis of 26AS only.

Sincerely,

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 14 December 2011

I am confused with your question. You are saying that L is the landlord, so how L will make the advance payment of Rent to T, T being the tenant. It shud be T who will pay the rent to L.

It shud be L who can claim the TDS refund as he is receiving the income. Could you please clarify correctly your question.

Mihir (Wealth Manager) (5293 Points)
Replied 14 December 2011

Good question.

1) Find out of the tenant who will pay rent and who will deduct TDS has a TAN number.

2) Find out if landlord is in the business of renting out property.

Accordingly, you can decide your plan of action.

manish sharma (ca final) (110 Points)
Replied 15 December 2011

please rectify your question

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CA. Amit Prajapati (Chartered Accountant) (118 Points)
Replied 30 December 2011

Irrespective of your question, presuming your query that: How the TDS will be adjusted in subsequent financial year. I have found the relevant weblink for CBDT circular and relevant case law. I think that you should deduct the TDS on whole of 5,00,000 and remedy available to L will be that he can claim TDS on Pro-Rata basis.

Refer the Circular: https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2009ITAct/sec_199.htm

Refer the Case Laws: https://www.simpletaxindia.net/2007/08/credit-of-tds-pro-rata-basis-in.html