Is PAN card mandatory for rent agreement?

When it comes to renting a property in India, various legal formalities need to be followed to ensure a smooth and lawful transaction. One common question that often arises is whether a PAN (Permanent Account Number) card is mandatory for a rent agreement. In this blog, we will delve into the details of this requirement and provide you with a clear understanding of whether you need a PAN card for a rent agreement.

Understanding PAN Card

A PAN card is a unique ten-digit alphanumeric code issued by the Income Tax Department of India. It serves as a universal identification key for various financial transactions, including tax payments, investments, and bank-related activities. The primary purpose of the PAN card is to track financial transactions and ensure tax compliance.

Rent Agreement and PAN Card

A rent agreement, also known as a lease agreement, is a legal document that outlines the terms and conditions between a landlord and a tenant regarding the rental of a property. While a PAN card is not a mandatory document for drafting a rent agreement, its requirement can vary based on specific circumstances.

When a PAN Card is Required

In certain cases, it is mandatory to provide the PAN details of the landlord when drafting a rent agreement. According to Section 139A of the Income Tax Act, if the annual rent amount exceeds Rs. 1,80,000, the tenant is obligated to deduct a certain percentage of tax (TDS) from the rent paid and remit it to the Income Tax Department. To do so, the tenant must possess the PAN details of the landlord. Whether you are a landlord or tenant. You should know your legal right of the tenant and landlord.

Importance of PAN for TDS Deduction

If the landlord's PAN details are not provided, the tenant is required to deduct TDS at a higher rate of 20% as per Section 206AA of the Income Tax Act. However, if the landlord is eligible to claim a lower tax deduction or exemption, they can submit Form 15G or Form 15H to the tenant, requesting for TDS to be deducted at a lower rate or not to be deducted at all. In such cases, the PAN card becomes crucial to validate the landlord's income and tax liability.

Tenant's PAN for Documentation

While the landlord's PAN is significant for tax-related purposes, some landlords may also request the tenant's PAN details for their own documentation. This practice is more common when the landlord needs to declare rental income in their tax returns and needs proof of the tenant's identity for the same.

Also Read - Which Stamp Paper Is Required For Rent Agreement?

Exceptions and Cases of Non-Requirement

There are instances when a PAN card is not mandatory for a rent agreement:

  1. Low Rent Amount: If the annual rent does not exceed Rs. 1,80,000, TDS deduction is not required, and therefore, PAN details are not mandatory.

  2. Government and Local Authorities: If the landlord is a government department or local authority, TDS deduction is not applicable, and hence PAN details may not be needed.

  3. Agricultural Income: If the landlord's income is primarily from agricultural activities and they do not have taxable income, PAN details might not be required.

Conclusion

While a PAN card is not inherently mandatory for a rent agreement, its significance arises in cases where TDS deductions are involved due to higher rental amounts. It's important to be aware of the income tax regulations and ensure compliance to avoid unnecessary legal hassles. Whether you are a tenant or a landlord, understanding the role of a PAN card in a rent agreement can help you navigate the process more effectively and transparently, fostering a trustworthy landlord-tenant relationship.

Written by Munna

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