All You Need to Know About TDS on Rent by Individual/ HUF| Section 194IB of Income Tax Act

These days employees are flooded with notices from the income tax department on the grounds that they have declared rent paid exceeding INR 6,00,000/- while claiming House Rent Allowance. However, they have failed to deduct the TDS on such rent under section 194-IB of Income Tax Act.

Section-194IB requires deduction of TDS on rent paid for residential property by Individual or HUF for an amount exceeding INR 6,00,000. However, practically most of the persons fail to comply with provisions of this section. The Department has identified the taxpayers who are paying rent exceed INR 6,00,000 per Annum but have failed to deduct the TDS.

This article discusses the key provisions of Section 194-IB and consequences of non-compliance:

1. Who is required to deduct TDS under Section 194-IB?

As per Section 194-IB, Individual or HUF who is paying rent to a resident exceeding INR 50,000/- per month or a part of the month shall deduct TDS at the rate of 2%.
Provisions of Section 194-IB shall not apply to Individual or HUF whose gross turnover exceeds INR 1 Crores from business or exceeds INR 50 Lacs from profession during preceding financial year. (as they are liable to deduct TDS under section 194-I).
Rent means any payment under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

2. Threshold limit for TDS Deduction

TDS is required to be deducted when the rent paid for the month or part of the month exceeds INR 50,000/-.
Some time, we may mistake that threshold limit for TDS deduction as INR 6,00,000/- per annum. However, the threshold limit is INR 50,000/- per month or part of the month.
E.g.

Example: 1

Rent paid (April to June): INR 40,000/- per month
Rent Paid (July to March): INR 55,000/- per month
Annual Rent: INR 6,15,000 (40,000*3 + 55,000*9)
TDS to be Deducted: July to March month
TDS amount to be deducted (assuming TDS rate of 5%): 24,750/-

Even if the Annual rent has exceed INR 6,00,000/-, TDS is not required to be deducted on the entire year rent payment.

Example-2

Rent paid (April to November): INR 40,000/- per month
Rent Paid (December to March): INR 55,000/- per month
Annual Rent: INR 5,40,000 (40,000*8 + 55,000*4)
TDS to be Deducted: December to March month
TDS amount to be deducted (assuming TDS rate of 5%): 11,000/-
Even if the Annual rent is less then INR 6,00,000/-, TDS is to be deducted for the month during which rent payment has exceeded INR 50,000/- per month.

3. Rate on which TDS is to be deducted

TDS was required to be deducted at the rate of 5%.
With effect from 1st October, 2024, TDS rate unde Section 194-IB has been reduced to 2%.

4. What is the due date of TDS deduction?

As per Section 194-IB, TDS deducted at the time of credit of rent for the last month of the previous year or the last month of tenancy, if the property is vacated during the year.
E.g.

Rent: INR 60,000/- per month;

Property occupancy period: April to March

Due date of TDS deduction: At the time of credit of rent for the month of March.

Rent: INR 60,000/- per month;

Property occupancy period: April to December

Due date of TDS deduction: At the time of credit of rent for the month of December.

5. What is the Due date to deposit TDS?

TDS payment is done through Form 26QC which is a Challan cum statement for TDS deduted under Section 194-IB.
Form 26QC should be filed within 30 days from the end of the month in which TDS is deducted.
Example:

Month in which TDS is deducted	Due date to deposit TDS and file Form 26QC
December, 2024	30th January, 2025
January, 2025	2nd March, 2025
February, 2025	30th March, 2025
March, 2025	30th April, 2025

6. Does a tenant need to apply for TAN for TDS Deduction?

As per Section 194-IB(3), The provisions of section 203A (Tax deduction and collection account number) shall not apply to a person required to deduct TDS under Section 194-IB.
Accordingly, Tenant is not required to apply for TAN for TDS deduction under Section 194-IB.
TDS challan cum statement is filed through Form 26QC wherein TAN is not required to be furnished.

7. Consequences if Landlord fails to furnish the PAN?

In general, as per Section 206AA, if the deductee fails to furnish his PAN to the deductor then the TDS shall be deducted at the rate of 20%.
Similarly, if the landlord fails to furnish his PAN to the tenant then TDS shall be deducted at the rate of 20%.
However, TDS amount shall not exceed the amount of rent payable for the last month.

8. Have you received notice for failure to deduct TDS under Section 194-IB?

Employees are flooded with notices from the income tax department on the account of their declaration of rent paid while claiming HRA deduction in Income Tax return.
As per the ITR filed, annual rent paid has exceeded INR 6,00,000/- but they have failed to deduct TDS.
These notices can be taken care of by:
- furnishing details reply, if TDS deduction is not applicable; or
- Revising Income Tax Return

Possible course of action to efficiently handle such notice can be read here.

9. Frequently Asked Questions

9.1 What are the consequences of failure to deduct TDS under Section 194-IB?

In the tenants fails to deduct the TDS then interest shall be charged at the rate of 1% per month or part of the month during which such default continues;

If the tenant deducts but fails to deposit such an amount then interest shall be charged at the rate of 1.5% per month or part of the month during which such default continues.

9.2 What are the consequences of failure to furnish TDS return?

If a person fails to file the TDS statement within the prescribed time then he shall be liable for payment of fee under 234E at the rate of Rs. 200 per day during which such default continues. However, such fee shall not exceed the amount of TDS. Further, he may also be liable for payment of penalty under section 271H and section 272A .

9.3 What are the applicable TDS provisions if the landlord is non-resident?

In such a case, TDS shall be deducted under section 195 instead of Section 194-IB.
TDS shall be deducted at the rate of 30% plus applicable cess and surcharge.
Further, there is not threshold limit applicable for TDS deduction, i.e., TDS shall be deducted even if the rent per month is less than INR 50,000/-.