Paying over ₹50,000 in monthly rent? Here’s why you must deduct TDS before making payment to your landlord

If you are paying rent of more than ₹50,000 a month, you need to deduct TDS before making the payment to your landlord. The Income Tax Act places TDS obligations on tenants paying high monthly rent.

The rules are laid down under Section 194-IB of the Income Tax Act, 1961. Failure to comply can result in interest charges, penalties and notices from the Income Tax Department.

Here’s what you need to know.

What does Section 194-IB cover?

Section 194-IB applies to individuals and Hindu Undivided Families (HUFs) who are not required to get their accounts audited under Section 44AB. This means even salaried taxpayers, who may have no business income, fall under its scope.

If the monthly rent paid to a resident landlord exceeds ₹50,000, the tenant must deduct 2% TDS before making the payment. The reduced 2% rate has been in effect since 1 October 2024. Earlier, the tax rate was 5%.

The provision covers rent paid for the use of land, buildings, factory premises, and other specified assets, such as machinery, furniture, fittings and equipment, under a lease, tenancy or similar arrangement. The landlord’s ownership of the asset is not a determining factor in the section’s applicability.

When should tax be deducted?

• If you stay in the rented property until the end of the financial year: Deduct TDS while paying or crediting the rent for the last month of the financial year.
• If you vacate the property during the year: Deduct TDS while paying the rent or crediting for the last month of your tenancy.

What is TDS rate if PAN is unavailable?

The landlord’s PAN plays an important role in determining the applicable TDS rate.

If the landlord does not provide a valid PAN, the tenant may have to deduct tax at 20% under Section 206AA. However, the amount of TDS cannot exceed the rent payable for the last month of the tenancy or financial year, as applicable.

How to deposit deducted tax?

One of the key compliance benefits under Section 194-IB is that tenants are not required to obtain a TAN. The tenant’s PAN is sufficient for completing the process.

The deducted tax must be deposited using Form 26QC, a challan-cum-statement, within 30 days from the end of the month in which the deduction is made.

After depositing the tax, the tenant must issue Form 16C to the landlord within 15 days from the due date of filing Form 26QC. This certificate serves as proof that TDS has been deducted and deposited with the government.

What does Section 194-IC cover?

While Section 194-IB deals with rental payments, Section 194-IC covers payments made under Joint Development Agreements (JDAs).

A JDA is an arrangement in which a landowner permits a developer to construct a real estate project on the property. In return, the owner may receive cash, a share in the developed property, or both.

Under this provision, any payment made to a resident under such an agreement is subject to 10% TDS. The tax must be deducted at the earlier of the date of credit to the payee’s account or the date of actual payment, irrespective of whether the payment is made in cash, by cheque, by bank transfer or by any other mode.

What are consequences of missing compliance?

If the tenant does not deduct TDS, interest is charged at 1% per month, or part of a month, from the date the tax should have been deducted until the actual deduction.

Where tax has been deducted but not deposited with the government, interest increases to 1.5% per month or part thereof until payment is made.

Delays in filing Form 26QC attract a late fee of ₹200 per day, but it cannot exceed the applicable TDS amount. If the tenant fails to issue the TDS certificate (Form 16C) to the landlord, a penalty of ₹500 per day shall be levied for each day of delay.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.