Tag: Tds on rent

TDS on Rent by Certain Individual or HUF Under Section 194-IB

Section 194-IB provides that every Individual and HUF, whose turnover or gross receipt from business or profession doesn’t exceed Rs. 1 crore in case of business and Rs. 50 lakhs in case of a profession in the immediately preceding financial year, shall deduct tax from the payment of rent for use of any land or building or both. The tax shall be deducted at the rate of 2% if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.

Deductor

Every Individual or HUF shall be required to deduct tax at source under this provision if his gross receipts or turnover in the financial year immediately preceding the financial year, in which rent is paid or credited, does not exceed Rs. 1 crore in the case of business and Rs. 50 lakhs in case of a profession.

The tax shall be deducted under this provision even if the individual is not engaged in any business or profession and he is just earning salary or any other income.

Further, there is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN.

Rent means any payment under any lease, sub-lease, tenancy, or any other agreement or arrangement for use of any land or building or both.

Deductee

Tax is required to be deducted only if the rent is paid or payable to a person who is resident in India. The tax shall be deducted under Section 195 if the sum is payable to a non-resident.

Time of Deduction

If tenancy subsists till the last month of the y ear

The tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of the financial year, whichever happens earlier.

If the property is vacated during the y ear

If the property is vacated during the year, tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of tenancy, whichever happens earlier.

Rate of TDS and threshold limit

The tax shall be deducted at the rate of 2% if the amount of rent exceeds Rs. 50,000 for a month or part of the month during the financial year.

The rate shall not be further increased by Surcharge and Health & Education Cess. If the deductee does not furnish his PAN to the deductor, the tax shall be deducted at the rate of 20% under Section 206AA. In such a case, the amount of TDS cannot exceed the amount of rent payable for the last month of the year or the last month of the tenancy, as the case may be.

Exemption from TDS

No tax is required to be deducted from any sum paid or payable to the following:

  1. The Government
  • The Reserve Bank of India
  • Corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income
  • Mutual Fund specified under Section 10(23D); or

Deposit of TDS

Tax deducted under this provision is required to be deposited to the credit of the Central Government through Form 26QC within 30 days from the last day of the month in which the tax was deducted.

Filing of TDS statement

The person responsible for the deduction of tax at source under this provision is required to furnish a challan-cum-statement in Form 26QC electronically.

TDS Certificate

The deductor shall issue a TDS certificate to the assessee in Form No. 16C within 15 days from the due date of furnishing of the TDS statement.

Consequences for failure to deduct or deposit tax

Where any person responsible for deducting tax at source fails to deduct tax or after deducting fails to deposit the same, he shall be treated as assessee-in-default. In that case, interest under section 201 will be applicable.

If the deductor fails to deduct TDS, interest at the rate of 1% per month or part of the month shall be applicable, till such failure continues. Interest shall be calculated from the date when such tax was required to be deducted till the date such tax is actually deducted.

Further, if the deductor after having deducted the tax, fails to deposit the same to the credit of the Central Government, interest at the rate of 1.5% per month or part thereof shall be applicable till such failure continues. The interest computation shall commence from the date on which the tax was deducted and end with the date when such tax was deposited to the government.

Penalty and Prosecution

Failure to comply with the provisions of deduction of tax at source under this provision may result in penalties and prosecution as per the following provisions:

  • If a person fails to deduct tax at source, he shall be liable for payment of penalty under Section 271C ;
  • If a person deducts tax but fails to deposit the same to the credit of the Central Government, he shall be liable for the penalty under Section 221 and prosecution under Section 276B.

However, no person shall be punishable under Section 276B if he proves that there was reasonable cause for the failure. Further, a person can also file an application for compounding of offence.

Consequences for failure to furnish TDS Statement

Where any person fails to furnish a TDS statement, section 234E shall be applicable, wherein the deductor is liable to pay fees at the rate of Rs. 200 per day during such default continues. However, such fees should not exceed the amount of TDS.

Moreover, he shall be liable for penalties under sections 271H of Rs. 10,000 which can be extended to Rs. 100,000, and 272A of Rs. 500 for every day during which failure continues.

Consequences for failure to issue TDS Certificates

Where any person, responsible for issuing TDS Certificates, fails to issue such certificates, a penalty under section 272A shall be applicable of Rs. 500 for every day during which failure continues.

MCQs on TDS from sum paid to buy an immovable property

Q1. The tax under section 194-IB shall be deducted if the rent paid or payable exceeds ……. per month or part of the month.

  • Rs. 50,000
  • Rs. 40,000
  • Rs. 20,000
  • Rs. 15,000

Correct answer – (a)

Explanation: The tax under section 194-IB shall be deducted if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.

Q2. What is the tax rate for the deduction of tax under section 194-IB?

  • 2%
  • 10%
  • 1%
  • 0.1%

Correct answer – (a)

Explanation: The tax shall be deducted at the rate of 2% under section 194-IB if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.

Q3. TAN is not required for the tax deduction under section 194-IB.

  • True
  • False

Correct answer – (a)

Explanation: There is no requirement to apply or obtain a Tax Deduction or Collection Account Number (TAN) for deducting tax under section 194-IB. Hence, a deductor can use his PAN in place of TAN.

Q4. Which of the following TDS return is required to be furnished if tax is deducted under section 194-IB?

  • 26Q
  • 26QB
  • 27Q
  • 26QC

Correct answer – (d)

Explanation: The person responsible for the deduction of tax at source under section 194-IB is required to furnish a challan-cum-statement in Form 26QC electronically.

Q5. Tax deducted under section 194-IB is required to be deposited to the credit of the Central Government through Form 26QC within…… from the last day of the month in which the tax was deducted.

  • 15 days
  • 30 days
  • 7 days
  • 10 days

Correct answer – (b)

Explanation: Tax deducted under section 194-IB is required to be deposited to the credit of the Central Government through Form 26QC within 30 days from the last day of the month in which the tax was deducted.

Q6. Which form is required to be issued as a TDS certificate if tax is deducted under section 194-IB?

  • 16A
  • 16B
  • 16C
  • 16D

Correct answer – (c)

Explanation: The deductor shall issue a TDS certificate to the assessee in Form No. 16C within 15 days from the due date of furnishing of the TDS statement.

Missed TDS on Rent? Income Tax Department Watching

Income Tax Department is sending notices to salaried taxpayers who claimed House Rent Allowance (HRA) but did not deduct tax at source (TDS) on rent payments in past financial years. The notices ask taxpayers to verify their HRA claims—and if incorrect, amend their tax returns before the 31 March deadline.

For those with legitimate HRA claims, the issue isn’t proving authenticity—it’s the potential liability for failing to deduct TDS on rent, said Prakash Hegde, a Bangalore-based chartered accountant.

“Those who have claimed genuine HRA don’t need to file an updated return,” said Bhawna Kakkar, founder of Kakkar & Company, Chartered Accountants.

The department’s email suggests that if TDS hasn’t been deducted, the HRA claim could be invalid, nudging taxpayers to reassess their claims.

TDS on rent: What the law says

Under India’s tax laws, tenants must deduct 2% TDS (reduced from 5% in October 2024) if their monthly rent exceeds ₹50,000—provided the landlord is a resident Indian. If the landlord is a non-resident Indian (NRI), the TDS rate jumps to 31.2%, regardless of rent amount.

“For resident landlords, the TDS rate is low, applies only when rent exceeds ₹50,000 and is to be deducted only in the last month of tenancy or in March, the last month of the financial year,” said Hegde. After deduction, tenants must deposit the amount using Form 26QC by seventh of the following month.

Failure to deduct or deposit TDS on time attracts penalties.

A 1% monthly interest is charged for non-deduction, while failure to deposit deducted TDS incurs a higher 1.5% monthly interest, Hegde explained. “For delays in filing e-TDS, ₹200 per day is payable until the eTDS return is filed. However, the upper limit of this late filing fee is equal to the TDS amount.

TDS provisions on rent have been in place since FY18, yet many tenants still fail to comply, often due to a lack of awareness. Penalties and interest kick in only when the tax department flags a default, making non-compliance a lingering risk. The absence of large-scale enforcement so far may explain why many tenants remain unaware of their obligations.

The latest tax notices should serve as a wake-up call. Hegde noted that these notices aren’t limited to FY24—they also cover previous financial years.

What you should do

Receiving a notice means the tax department may consider you a defaulter under Section 201, which deals with the consequences of not deducting or paying TDS. But there’s a way out.

“As per the proviso to Section 201, even if there is a TDS default, the assessee can provide the landlord’s tax return as proof that the rent was declared as income and taxes were duly paid,” said Kakkar.

Hegde explained that tenants who receive such notices must file Form 26A and obtain a CA certificate confirming that the landlord has reported the rental income and paid the necessary taxes. “The CA has to verify the landlord’s ITR and payment details and certify that all the taxes due have been paid by the landlord,” he said.

This can help tenants avoid interest charges and daily penalties for late filing. However, TDS officers still have the discretion to impose a penalty equivalent to the TDS amount, even after proof is submitted.

For tenants who choose to file Form 26QC and pay TDS after receiving the notice, interest and late filing fees will apply. This would especially affect those taxpayers whose landlords haven’t declared rental income—without a CA certificate confirming tax payment, the tenant remains fully liable for the unpaid TDS.

Meanwhile, those who falsely claimed HRA should see these notices as a final warning. With the tax department already taking note, filing an updated return now is safer than facing a full-fledged scrutiny.

“Fake HRA claims have been under the radar of the income tax department. The recent notices issued with respect to HRA claims and co-relating them with TDS on rent expenses is an extension of the same,” said Janhavi Pandit, a Mumbai-based chartered accountant.

In April 2024, the CBDT flagged discrepancies between high-value rent payments and landlords’ declared income but clarified there was no blanket reopening of past cases, noted Pandit, adding that with these new notices, taxpayers are being nudged to review their records and take corrective action—either by paying TDS with interest or revising their HRA claims.

“This is another way of nudging taxpayers to file updated income tax returns for assessment year 2022-23, the last date being 31 March 2025,” she added.

TDS on Rent under Section 194I of Income Tax Act in 2024

Section 194I of Income Tax Act is applicable on a landlord earning a rental income from land, building, plant & machinery, furniture and fittings, etc. The responsibility to deduct the TDS (tax deducted at source) is on the tenant under this section.

TDS on rent under Section 194I

Section 1941 was inserted in the income tax law through the Finance Act, 1994, to cover rental income under the ambit of TDS payments. TDS on rent paid by a businessman is governed by Section 194I while TDS on rent paid by an individual or HUFs falls under Section 194IB of the law.

Conditions for TDS deduction on rent

Section 194I of the Income Tax Act says the tenant must deduct 10% TDS on rent generated from any land or building if the aggregate of the rent paid or likely to be paid during a financial year exceeds Rs 2.40 lakh. The limit of Rs 2.40 lakh is applicable for each payee and not for each of the properties. In case the owner of a property has let-out more than one property to the same lessee and the annual rent of these is less than Rs 2.40 lakh for each property annually but the aggregate of the rent is likely to exceed Rs 2.40 lakh, the lessee has to deduct the tax at source.

Tax (TDS) deduction rate on rent 2024

Nature of paymentTDS on rent
Rent of plant and machinery2%
Rent of land or building or furniture or fittings10% (5% for Individuals and HUFs not liable for tax audit)

Who is liable to deduct TDS on rent?

The present provisions are applicable to all tax payers, including companies, firms, trusts or association of persons, etc.

However, if the payer of rent is an individual or HUF, the provisions will apply if the payer of the rent is engaged in a business or profession and the accounts were required to be audited during the preceding year, due to the turnover being in excess of the prescribed limit.

What happens if TDS is not deducted on rent?

If the TDS is not deducted, penalty interest at 1% is applicable per month till the TDS is deducted.

How is TDS on rent calculated?

Tenants are required to deduct TDS when the payment is being made to a resident  landlord on rent payment exceeding Rs 2.40 lakh in a year.

If the landlord is a non-resident, the tenant has to deduct tax under the provisions of Section 195 of the Income Tax Act, without there being any threshold limit of Rs 2.40 lakh per annum.

The payment may be called by any name but the tax is required to be deducted in case the payment is for use of land, building or land and building.

Also, it is not necessary that the recipient of the rent should be the owner of the property. So, in case a lessee sublets the property taken by him on rent/lease to any other person, the sub-lessee has to deduct tax at source.

Likewise, tax is required to be deducted from payments made to hotels for providing rooms to you in case the rent is likely to exceed the limit during the year.

When is TDS deducted on rent?

The TDS is required to be deducted at the time of crediting the rent in its books of accounts even if the payment is made later. Likewise, you need to deduct the tax at the time of making an advance payment of such rent, either for the year or even in cases where the rent is paid in advance for more than one year. For payment of the TDS to the credit of the government, you need to obtain the tax deduction account number (TAN) and deposit the tax through the prescribed challan.

How to pay TDS on rent?

The tenant has to furnish information regarding the transaction online on the TIN website, http://www.tin-nsdl.com. After successfully providing details of transaction, he can either make the payment online through e-tax payment option immediately or make the payment subsequently through e-tax payment option (net-banking account) or by visiting any of the authorised bank branches. However, such bank branches will make e-payment without digitization of any challan. The bank will get the challan details from the online form filled on TIN website(www.tin-nsdl.com)

TDS deduction on rent paid by individuals and HUFs in 2024

Rent payerTDS rateThreshold limit
Companies, firms, trusts or association of persons, etc., and individuals or HUFs, where the payer is engaged in a business whose accounts were audited10% of the rent.TDS has to be deducted if the aggregate of the rent paid or likely to be paid during the year exceeds Rs 2.40 lakh
Individuals and HUFs not covered in the above section5% of the rent.TDS has to be deducted if the rent for each month or part of the month is more than Rs 50,000.

The payer is required to deduct tax only in the last month of the year or during the last month of tenancy in case the property is vacated during the year. However, in case the rent is paid earlier, you are required to deduct tax at the earlier moment.

So, with the new provisions, even the people who are salaried or retired and not carrying on any business or profession but are paying rent above Rs 50,000 per month, will have to deduct tax at source from such rental. This will bring those people into the tax net, who are earning rent by letting out the property to people who are not engaged in any business or profession.

Since the rent for this purpose includes any payment for use of building, this will even cover the rent paid by you to hotels for room bookings, or even to marriage halls, in case the rent for use of such premises exceeds Rs 50,000 even for one day.

TDS on rent paid to NRIs

According to Section 195 of the Income Tax Act, the tenant should deduct TDS at the rate of 30% on rent paid to an NRI landlord for property located in India. For deducting TDS on the rent, the tenant should have a TAN. If the tenant fails to deduct TDS on the rent paid to the NRI, the payer is liable to pay penalty as per the prevailing provisions.

Is TAN mandatory for TDS on rent?

Individual or HUFs need PAN to deduct and deposit TDS. Assessees other than individuals or HUFs need to have a TAN to deduct and deposit TDS.

Form for TDS payment

To pay TDS on rent, log on to www.tin-NSDL.com.  On the website, you will find the link to fill Form 26QC. Fill all your details, the details pertaining to your landlord and all the details of the financial transaction. In case you are sharing the accommodation, their details must also be furnished. Similarly, if your landlord co-owns the property with someone else, their details must also be given in the form.