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Section 194-IB mandates individuals or HUFs paying rent over Rs 50,000/month to deduct TDS.
How Tenants Paying High Rent Must Comply With TDS Rules Under Section 194-IB
Under Section 194-IB of the Income Tax Act, 1961, individuals or Hindu Undivided Families (HUFs) paying rent above Rs 50,000 per month to a resident landlord are required to deduct tax at source (TDS). The rule applies even if the threshold is crossed for just one month during the financial year.
The provision applies to individuals and HUFs not covered under tax audit requirements under Section 44AB. It was introduced in 2017 to improve tax compliance in rental transactions.
Why The Rule Was Introduced
The government introduced this provision after noticing a mismatch between tenants claiming House Rent Allowance (HRA) exemptions and landlords not reporting the corresponding rental income in their tax returns. Section 194-IB was designed to bring greater transparency and ensure proper reporting of rental income.
TDS Rate And Budget 2024 Change
Earlier, tenants were required to deduct 5 percent TDS if the landlord provided a valid PAN. In cases where PAN was not furnished, the deduction increased to 20 percent, although the amount deducted could not exceed the rent payable for the last month of the tenancy.
However, in Union Budget 2024, the government reduced the TDS rate under Section 194-IB to 2 percent, effective October 1, 2024, easing the compliance burden for tenants paying higher rents.
When Should TDS Be Deducted
“TDS is required to be deducted at the time of credit of rent for last month of the financial year, i.e., March or the last month of tenancy, if the property is vacated during the year. The deducted TDS must be deposited with the Government within 30 days from the end of the month in which deduction is made. Therefore, TDS deducted in March 2026 is to be deposited by 30th April 2026,” said Gopal Bohra, Partner – Tax, NA Shah Associates told Moneycontrol.
Compliance And Payment Process
Tenants can deposit the tax through Form 26QC on the income tax e-filing portal.
“For tenants paying over Rs 50,000 in monthly rent, the compliance process is straightforward. They can deposit the tax using Form 26QC without the need to register for a TAN. This structure encourages individuals to report their transactions accurately and improves transparency in the real estate sector, whilst keeping the paperwork manageable for regular taxpayers,” said Archit Gupta, Founder and CEO of ClearTax told MC.
After payment, tenants must issue Form 16C to the landlord as proof of TDS deduction.
Penalties For Non-Compliance
Failure to deduct or deposit TDS may lead to penalties. The tenant may be treated as an assessee in default, facing interest of 1 percent per month for non-deduction and 1.5 percent for delayed payment, along with a late filing fee of Rs 200 per day and penalties of up to Rs 1 lakh under Section 271H for not filing TDS returns.
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March 09, 2026, 07:00 IST
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