Paying rent above Rs 50,000? Deduct TDS or face income tax default notice

The Income Tax Department has issued a new brochure detailing Section 194-IB, which outlines a tenant's responsibility to cut Tax Deducted at Source (TDS) from house rent payments. This deduction must be made before the rent is paid to the landlord, which enables the tax authorities to monitor rental income. However, this requirement to deduct TDS is applicable only when the monthly rent exceeds Rs 50,000.

 

“As per Section 194-IB of the Income Tax Act, 1961 (IT Act), any individual or Hindu Undivided Family (HUF) responsible for paying rent exceeding Rs 50,000 per month to a resident is required to deduct tax at source (TDS). The term ‘rent’ includes any payment made under a lease, sub-lease, tenancy, or similar arrangement for the use of land, building, or both. The TDS must be deducted at the time of credit or payment of rent for the last month of the financial year or tenancy, whichever is earlier. Non-compliance with this provision may lead to the tenant being treated as an assessee in default, and may attract interest and penalties as prescribed under the IT Act,” said Kunal Savani, partner, Cyril Amarchand Mangaldas.

 

 

“The tenant must deduct 5 per cent TDS on the rent amount and deposit it with the government using Form 26QC within 30 days from the end of the month in which the rent is paid. Effective October 1, 2024 (AY 2025-26), the rate has been revised to 2 per cent. All such deductions should be paid to the government latest by March 31 of the respective financial year in which the deductions were made. Interest may be levied by the government if any such payments are made after this due date.  Following this, Form 16C, which is the TDS certificate, should be issued to the landlord within 15 days,” said Amit Bansal, partner, Singhania & Co.

 

Failure to deduct or deposit TDS can lead to significant consequences. The tenant may be treated as an ‘assessee in default’ and could face interest charges (1 per cent per month for non-deduction and 1.5 per cent for non-payment after deduction), a late filing fee of Rs 200 per day, and penalties up to Rs 1 lakh under Section 271H for not filing TDS returns. Additionally, the entire tax not deducted may be recovered from the tenant.

 

Bansal explains points to keep in mind while paying rent and taking tax benefits

 

Tenants claiming HRA benefits must still deduct TDS if the monthly rent exceeds Rs 50,000, regardless of whether HRA is claimed or not.

 

It is essential that all the required proofs such as the rent agreement, rent receipts and TDS payment proofs should be maintained properly by the assessee. Ensuring timely deduction and deposit of TDS helps avoid unnecessary penalties and ensures smooth compliance with tax laws.

 

How to fill Form 26QC

 

Visit the NSDL website at www.tin-nsdl.com. Navigate to the ‘Services’ section and select TDS on Property (194IA).

 

Choose Form 26QC under the TDS on Property section. Select the option to fill the online form for furnishing TDS on property.

 

Enter the details of the property buyer and seller:

 

Buyer’s PAN: Provide the permanent account number (PAN) of the buyer.

 

Seller’s PAN: Provide the PAN of the seller. Ensure that the PAN details are accurate, as any errors may lead to rejection.

 

Fill in the property transaction details:

 

Transaction date: Mention the date of the sale agreement or property purchase.

 

Total consideration: Enter the total sale value of the property.

 

Payment type: Indicate whether the payment was made in full or in installments.

 

Property type: Specify whether the property is residential, commercial, etc.

 

Enter the payment details, including challan payment mode and bank information.

 

Upon successful payment, an acknowledgement receipt along with a Challan Identification Number (CIN) will be generated. Save or print this receipt for future reference.