Over ₹50k on rent? Here's the TDS rule that could cost you big if ignored

Missing TDS on rent over ₹50k? It's a costly slip. 'A small deduction today avoids a big problem tomorrow,' says a tax expert.

Paying rent above Rs 50,000 a month? As a tenant, you may be legally required to deduct tax at source (TDS) and deposit it with the government. Missing this crucial step could land you in trouble with penalties of up to Rs 1 lakh, tax experts warn.

 

What the law says

Under Section 194-IB of the Income Tax Act, individuals or Hindu Undivided Families (HUFs) not subject to tax audit must deduct TDS at 2 per cent if the monthly rent exceeds Rs 50,000.

 

“This provision, introduced in 2017, is still widely misunderstood, especially among salaried tenants in metro cities paying high rents,” said Niyati Shah, chartered accountant and vertical head -- Personal Tax at 1 Finance.

 

 

“If your monthly rent exceeds Rs 50,000, you must deduct TDS at 5 per cent and deposit it once in a financial year, either in March or when vacating the property, whichever is earlier,” explained Kinjal Bhuta, chartered accountant, advocate and secretary, Bombay Chartered Accountants’ Society.

 

“There’s no need to obtain a Tax Deduction Account Number (TAN); quoting your PAN and the landlord’s PAN is sufficient.”

 

“The deducted tax must be deposited via Form 26QC within 30 days and a Form 16C TDS certificate issued to the landlord within 15 days,” Shah added.

 

For those running businesses or professions with turnover above RS 1 crore (business) or Rs 50 lakh (profession), Section 194-I(b) applies.

 

“Such taxpayers must deduct TDS at 10 per cent if annual rent crosses Rs 2.4 lakh and require a TAN,” noted Suresh Surana, chartered accountant.

 

What happens if you miss it?

Failing to comply can be expensive. “Overlooking TDS obligations can lead to a financial and compliance headache,” Shah warned.

 

Experts states consequences include:

 

-Interest of 1 per cent per month for not deducting TDS and 1.5 per cent per month for delayed deposit.

 

-Late filing fee of Rs 200 per day until Form 26QC (the TDS return for rent) is submitted.

 

-Penalty up to Rs 1 lakh under Section 271H for not filing Form 26QC or issuing Form 16C on time.

 

In extreme cases, prosecution with jail terms ranging from 3 months to 7 years may apply for wilful defaults, Surana said.

 

Missed the deadline? Here’s what to do

 

Voluntary compliance is key.

 

“If you’ve missed TDS, calculate and deposit it immediately with applicable interest through Form 26QC. Then issue Form 16C to your landlord,” advised Shah. She added that tenants can request a waiver of penalties by citing genuine reasons, especially for first-time lapses.

 

Surana agreed, stressing the importance of acting swiftly. “Prompt correction before receiving a tax notice is viewed favourably by authorities.”

 

Common mistakes to avoid

 

Many tenants wrongly assume TDS applies only when rent is paid to companies or that personal rent is exempt.

 

“TDS applies irrespective of whether the landlord is an individual, HUF, or company, provided the Rs 50,000 threshold is crossed,” Surana clarified.

 

Experts suggested few precautions for tenants:

 

-Collect the landlord’s PAN when signing the lease.

 

-Maintain proof of TDS payment and Form 16C issuance.

 

-Cross-verify entries in the landlord’s Form 26AS to avoid disputes.

 

Why it matters

 

With the Income Tax Department tracking high-value transactions digitally, tenants ignoring TDS obligations risk notices, interest and penalties. “A small deduction today avoids a big problem tomorrow,” Shah summarised