• What Is a Rent Agreement?
• Why Might a PAN Card Be Necessary?
  1. a. For Tax Deduction at Source (TDS)
  2. b. Claiming House Rent Allowance (HRA) Exemption
• Cases Where a PAN Card Is Not Mandatory
  1. a. Rent Below the TDS Threshold
  2. b. Residential Purposes
• Importance of PAN for Landlords
  1. a. Tax Compliance
  2. b. Avoiding Penalties
• Role of PAN in Commercial Rent Agreements
• How to Include PAN Details in a Rent Agreement
  1. a. As an Annexure
  2. b. Mention in the Agreement Clause
• Conclusion

When entering into a rental agreement, there are several legal formalities that both the landlord and tenant must fulfill. One common question is whether a Permanent Account Number (PAN) card is required for a rent agreement. In this blog, we will discuss the role of a PAN card in the context of a rent agreement in India.

What Is a Rent Agreement?

A rent agreement is a legally binding contract between a landlord and a tenant that outlines the terms and conditions under which the tenant will occupy the property. The agreement specifies the rent amount, the duration of the tenancy, and other critical clauses such as security deposit, maintenance responsibilities, and termination conditions.

Why Might a PAN Card Be Necessary?

While a PAN card is not legally required to execute a rent agreement, there are certain situations where it becomes essential:

a. For Tax Deduction at Source (TDS)

According to Indian tax laws, if the annual rent paid by a tenant exceeds ₹2.4 lakh, the tenant must deduct TDS at a rate of 5% from the rent amount. In such cases, both the landlord and tenant are required to provide their PAN details to comply with TDS provisions. The tenant must deposit the TDS with the Income Tax Department and provide a TDS certificate to the landlord.

b. Claiming House Rent Allowance (HRA) Exemption

If you are a salaried employee claiming House Rent Allowance (HRA) as part of your salary, providing the landlord’s PAN card details may be mandatory. As per Income Tax laws, if the annual rent exceeds ₹1 lakh, the employee must furnish the landlord’s PAN to claim HRA benefits. If the landlord does not have a PAN card, the tenant should obtain a declaration from the landlord.

Cases Where a PAN Card Is Not Mandatory

a. Rent Below the TDS Threshold

If the annual rent is less than ₹2.4 lakh, the tenant is not obligated to deduct TDS. Therefore, in such cases, providing a PAN card is not required under tax laws.

b. Residential Purposes

For residential rent agreements, a PAN card is generally not needed unless the rent exceeds the HRA or TDS threshold. The primary requirement for a rent agreement is the correct identification of both parties, which can be fulfilled through alternative identity proofs such as Aadhaar cards, voter IDs, or passports.

Importance of PAN for Landlords

While tenants may or may not need to provide their PAN card, it is more important for landlords. Providing PAN details ensures the following:

a. Tax Compliance

Landlords receiving rent that exceeds ₹2.4 lakh annually are legally required to declare it in their income tax returns. A PAN card helps facilitate this declaration and ensures transparency in financial transactions.

b. Avoiding Penalties

Failure to provide a PAN card when TDS applies can result in higher deductions (20% instead of 5%) by the tenant. This can be avoided by furnishing a valid PAN.

Role of PAN in Commercial Rent Agreements

In commercial rent agreements, where the rent amount is often higher than in residential agreements, providing PAN details becomes more crucial. Since TDS and other tax-related provisions are often involved, the PAN card of both the landlord and tenant may be required to ensure tax compliance.

How to Include PAN Details in a Rent Agreement

If the PAN card is necessary for the agreement, it can be included in the following ways:

a. As an Annexure

You can provide the PAN details of the landlord or tenant in an annexure attached to the rent agreement.

b. Mention in the Agreement Clause

The rent agreement may have a specific clause stating the PAN details of both parties for tax compliance purposes.

Conclusion

A PAN card is not always required for a rent agreement, but it becomes necessary in certain situations, especially for tax compliance purposes. For tenants paying substantial rent, PAN details are crucial for both deducting TDS and claiming HRA exemptions. Landlords should also be mindful of providing their PAN details to avoid higher TDS deductions and tax complications. Whether you are a tenant or landlord, staying compliant with tax laws ensures a smoother and more transparent rental experience.

For any assistance in drafting rent agreements or understanding the legal requirements, always consult legal professionals to guide you through the process.