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Tds on (spilt) rent agreement

LIJO PHILIP (FA) (91 Points)

18 December 2015

Sir / Madam, Please solve the query regarding tax impact on this transaction:- Mr. A is an employee of XYZ Limited. He is staying with his family in a rented house (Leave & License agreement) and reimburses a monthly rent of Rs. 17000. Owner of this house is Mr. & Mrs. B (husband & wife) both. Now XYZ Limited has made two different agreement on behalf of Mr. A with Mr. & Mrs. B with rent to be paid equally Rs. 8500. Query :- 1) Can XYZ Limited make two different agreement for one employee Mr. A just because he can save TDS on monthly reimbursement (Rent) ? 2) Is this agreement a Void in nature ?

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17 Replies

MOXESH DOSHI (INTERNAL AUDITOR) (57 Points)
Replied 18 December 2015

Section 194I says that TDS to be deducted when rent is paid to any person in excess of Rs.1,80,000.

The above limit shall be calculated asset wise assessee wise.

In present case, If the house property is equally co-owened by husband & wife and the rent is being credited equally in thier individual accounts seprately, TDS shall not be deducted for such payments. (Solution to Q-1)

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Ruchi (CA) (1410 Points)
Replied 18 December 2015

No, this agreement is not void in nature and two different agreements can be made because though the tenant is one but the owners are two. A single agreement could have also been suffice saying that the rent will be paid Rs.8500 to each. But two different agreements are also fine and there is nothing unlawful in that. If you are eventually saving tds in lawful manner, there is nothing wrong in it.

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LIJO PHILIP (FA) (91 Points)
Replied 18 December 2015

Sir / Madam,

Thanks for the reply.

MOXESH DOSHI (INTERNAL AUDITOR) (57 Points)
Replied 18 December 2015

I think there is nothing to do with nature of agreement made between the Company and The Owners for the purpose of deducting TDS.

If the Rent is being credited equally in their seperate accounts, Company is not liable to deduct TDS in this case.

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(Guest)

If property is jointly owned, then there has to be a single agreement with all owners.

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ashish (article) (151 Points)
Replied 18 December 2015

You used the words reimbursement, it does mean that Mr A(employee) is paying rent and company at the end of month just reimbursing to it's employee.... So it is NOT A RENT BUT IN NATURE OF HRA THEREFORE A SALARY EXPENSE.....secondly when Mr A (being individual) is paying rent to Mr & Mrs. B then provision of section 194I does not apply.............. Therefore there is no question of applicability of TDS on rent in your case........... Therefore, any agreement of rent in your case is of no relevance........

ashish (article) (151 Points)
Replied 18 December 2015

Secondly.... If we just check the legality of the agreement in other way.... Then yes,, such agreement is very much valid. You just need to issue two cheques separately to Mr B and Mrs.B

Ruchi (CA) (1410 Points)
Replied 18 December 2015

I agree that one agreement is generally made and required but still if someone ends up making two then that is not not unlawful and doesnt renders the agreement void.

LIJO PHILIP (FA) (91 Points)
Replied 19 December 2015

Sir / Madam, Please also guide me in this case regarding tax impact on this transaction :- Mr. R is an employee of ABC Limited. He is working in Pune and provided an accomodation by company (free) and he is claiming a rent of Rs. 25000 monthly (3 lakh yearly) for the his family who is staying in Delhi on Rental house. He first pays the rent out of his pocket and then claims (reimburses) from the Company. Query :- 1) On this transaction TDS will be applicable as the yearly rent is more than Rs. 180,000 ? 2) If yes, then please suggest how the TDS will be deducted (point of taxation), will it be deducted from the Owners Income (House Owner) or will this be treated as an income of Mr. R and TDS will be deducted from Mr. R.

CA.PRADIPTA KUMAR PANDA (PARTNER) (27 Points)
Replied 19 December 2015

No problem. It is legally valid

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CA.PRADIPTA KUMAR PANDA (PARTNER) (27 Points)
Replied 19 December 2015

No problem. It is legally valid

CA.PRADIPTA KUMAR PANDA (PARTNER) (27 Points)
Replied 19 December 2015

No problem. It is legally valid

Ruchi (CA) (1410 Points)
Replied 19 December 2015

@ LIJO PHILIP

I dont think tds will be applicable on rent paid by employee here even when he is reimbursed by company. The employee as individual is not liable to pay tds And for the company , it is a part of salary of the employee. So no tds on rent paid to landlord . But tds will be deducted from the total salary of the employee (including rent reimbursement) i.e.Mr R by the company.