The income tax department has been tracking individuals who failed to comply with these TDS rules. Taxpayers who claimed HRA exemption while paying rent above ₹50,000 received SMS and email alerts from the I-T department. The penalty for non-compliance is steep.
Tenants who did not deduct TDS on rent under 194-IB can avoid these penalties by proving that the landlord has paid tax on the rental income. This is done by filing Form 26A, a certificate from a chartered accountant (CA) confirming that the tax has been paid.
This seemingly simple solution is, however, fraught with technical hurdles.
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Also Read: Details on rent, home loan, TDS: ITR forms seek more disclosures this year
Portal problems
The Traces (TDS Reconciliation Analysis and Correction Enabling System) or e-filing portal, which is needed to generate Form 26A, does not allow individual deductors to initiate the process unless the user has a tax deduction and collection account number or TAN number, tax experts toldMint.
The tax department’s Traces portal is an online platform that helps both deductors and taxpayers view, reconcile, and manage their TDS transactions for filing returns and claiming refunds.
To be sure, individuals paying rent to resident landlords aren’t required to obtain a TAN to deduct TDS.
Even if someone goes through the trouble of getting a TAN, which is an entirely online process and typically takes 2-4 days, the problem doesn’t end there.
Chartered accountant Ashish Karundia said even when a TAN is obtained, the portal does not have Form 26QC, which is required to fill in details regarding this matter when logged in to the Traces portal.
As per Section 201, defaulting tenants can show the landlord’s ITR to prove that tax on rental income is paid. To do this, they should initiate Form 26A on the Traces website.
The tenant should log in to the Traces platform as a deductor. He needs to initiate Form 26A, add details of non-deduction and assign the Form 26A to a CA for verification through the TAN login on e-filing portal.
Also Read: TDS on rent and contract work: How small taxpayers can avoid penalties
The process may seem easy, but it is an uphill task due to technical challenges. Logging into Traces through PAN will not work as Form 26A can only be initiated through ‘deductor’ Traces log-in, which needs a TAN, said Karundia.
Deductor login is for those who deduct and deposit the TDS and taxpayer login is for the deductee on whose behalf tax is being paid (landlord in this case).
Getting TAN takes 2-4 days to be issued, but even if the tenant gets a TAN number and successfully logs in to the Traces portal as a deductor, a second layer of challenge crops up, said Karundia.
“After logging in, the tenant has to initiate Form 26A and choose the type of form he’s filing–26QB for TDS on property purchase, 26QC for TDS on rent or 26QD for TDS on payment to contractors. It is mandatory to choose one of these options before entering other transaction details,” he explained.
The Traces portal for deductors does not have this option as all three TDS deductions–property, rent and contractual services–are PAN-based and do not require a TAN in the first place.
“Even if the tenant gets a TAN and logs in to the Traces deductor portal, he will still not be able to initiate Form 26A due to unavailability of Form 26QC,” said Karundia.
Also Read: Relying on rental income in retirement? Take these steps to protect yourself.
What needs to change
Karundia said Traces should allow users to log in using PAN details instead of TAN, and allow Form 26A initiation for Forms 26QB, 26QC, and 26QD.
Once this is initiated, the taxpayer can assign it to a CA through the e-portal. After the CA certifies that the recipient has paid the due tax, they can sign it and get it processed.
“Currently, taxpayers can’t assign Form 26A to a CA through their taxpayer (PAN) ID in Traces. So, there is a need to extend the ability of assignment of Form 26A to a CA….,” said Mayank Mohanka, founder of TaxAaram India and a partner at S.M. Mohanka & Associates.
For now, CAs like Karundia are maintaining Form 26A manually. “Right now there is no other option. The other option is to have the form along with CA-certified Annexure A in physical form with the tenant, ” Karundia said.
Bhawna Kakkar, chartered accountant and founder, Kakkar & Company, CharteredAccountants, said she is also maintaining the Form 26A manually.
“Due to this technical limitation, such tenants cannot initiate Form 26A filing through Traces. The alternative approach is to manually submit the CA-certified Form 26A along with supporting documents (landlord’s ITR, rent income proof, tax paid details) either in response to a notice received from the department or directly to the jurisdictional assessing officer.”
“The tenant would still be required to pay interest under section 201(1A) at 1% per month from the month TDS was deductible till the month the landlord filed the ITR. Once the AO is satisfied that the conditions are met, the tenant is not treated as in default for the TDS, and no demand will be raised for the tax amount, only the interest may be payable,” said Kakkar.
The government has to necessarily address this issues faced by taxpayesr at the earliest so that the ordinary citizens who are ignorant of the TDS provisions can take necessary steps to avoid ending up being ‘assessee in default’, said Prakash Hegde, a Bengaluru-based CA.
“Until the government makes these updates to form 26A, it is going to be big challenge for the defaulters, most of whom are ignorant of the provisions,” said Hegde.
Kakkar said, “If procedures are not in sync with the law, the law should be applied instead of procedures, and the law nowhere restricts form 26QB/26QC type payments for the benefit under proviso to section 201. So, the only option left is to proceed manually and provide a manual CA certificate. We actually have given one such certificate.”
