Most tenants are unaware that paying rent above ₹50,000 per month triggers a TDS obligation — even for individuals who don't run a business. Section 194-IB of the Income Tax Act places this responsibility squarely on the tenant, not the landlord. Ignoring this can lead to interest charges, penalties, and a notice from the Income Tax department.
Who Does Section 194-IB Apply To?
Section 194-IB applies to individuals and Hindu Undivided Families (HUFs) who are not required to deduct TDS under Section 194-I (i.e., those not covered by tax audit). In practice, this means salaried individuals, self-employed professionals, and HUFs paying rent above ₹50,000 per month to a resident landlord.
Rate of TDS
TDS is to be deducted at 2% of the monthly rent (reduced from the earlier 5% effective from October 1, 2024 as per Budget 2024). This deduction is made from the last month's rent of the financial year, or at the time of vacating the property — whichever is earlier.
Example: Monthly rent of ₹60,000 → TDS = ₹1,200 (2% of ₹60,000), deducted from the last month's payment or at vacating.
No TAN Required
One important benefit under this section: tenants need not obtain a TAN (Tax Deduction Account Number). The payment is made using Form 26QC, which uses the tenant's and landlord's PAN instead.
How to File and Deposit TDS Under 194-IB
- Deduct TDS from the last month's rent (or at vacating).
- Deposit the TDS using Form 26QC on the TIN-NSDL portal within 30 days from the end of the month in which TDS was deducted.
- After deposit, download the TDS certificate Form 16C from TRACES and provide it to your landlord within 15 days of the due date of depositing TDS.
What If You Don't Deduct TDS?
Failure to deduct TDS makes you liable as an "assessee in default." Consequences include:
- Interest at 1% per month for failure to deduct, from the date TDS was deductible to the date of actual deduction.
- Interest at 1.5% per month for failure to deposit after deduction.
- Penalty under Section 271C equal to the amount of TDS not deducted.
Common Situations That Cause Confusion
| Situation | TDS Applicable? |
|---|---|
| Monthly rent ₹45,000 | No — below ₹50,000 threshold |
| Monthly rent ₹55,000, tenant is salaried individual | Yes — Section 194-IB applies |
| Monthly rent ₹55,000, tenant is a Pvt Ltd company | Yes — but Section 194-I applies (different section, TAN required) |
| Landlord is NRI | Section 195 applies — different rules, higher compliance |
If you realise you've been paying rent above ₹50,000/month without deducting TDS, it's advisable to catch up as soon as possible. A voluntary correction approach — with interest but no penalty — is far better than waiting for a notice. Our team can help you compute the liability and file Form 26QC correctly.