Paying Over ₹50,000 in Rent? Ignoring This One-Step TDS Rule Could Cost You ₹1 Lakh Penalty
Paying Over ₹50,000 in Rent? Ignoring This One-Step TDS Rule Could Cost You ₹1 Lakh Penalty
Section 194-IB of the Income Tax Act mandates TDS on high-value rents, even for salaried individuals. Missing it could lead to heavy penalties, interest, and even prosecution.
Many tenants wrongly assume that tax deduction at source (TDS) on rent is a corporate responsibility. But if you pay more than ₹50,000 in monthly rent, you’re likely liable too—regardless of whether you’re a business or a salaried individual. Ignoring this one-step tax compliance can prove expensive.
Take the case of Abhishek, a salaried professional who paid ₹55,000 in monthly rent but didn’t deduct TDS or file the required Form 26QC. The result? A penalty notice of ₹1 lakh from the income tax department under Section 271H.
What the Law Says
Section 194-IB of the Income Tax Act, 1961, clearly states that individuals (including salaried persons and HUFs) paying monthly rent exceeding ₹50,000 to a resident landlord must:
- Deduct 2% TDS on the total annual rent (previously 5% before October 1, 2024)
- File Form 26QC, a challan-cum-statement, online
- Provide Form 16C (TDS certificate) to the landlord
This TDS is deducted only once, either at the end of the financial year or when the tenancy ends—whichever is earlier.
What Happens If You Miss It
Failing to comply with this rule doesn’t just draw a slap on the wrist. It can result in:
- ₹200 per day late fee until the TDS return is filed
- 1% interest/month for non-deduction
- 1.5% interest/month for non-deposit
- Penalty between ₹10,000 to ₹1,00,000 under Section 271H
- In rare cases, prosecution with up to 7 years of imprisonment
In another instance, a tenant named Rohan missed deducting TDS on ₹60,000 rent per month for two consecutive years. By the time he rectified it, he had to pay ₹37,000 as penalties and interest—more than the TDS amount itself.
TDS and Shared Accommodation
If two individuals share a flat with total rent of ₹60,000, can they avoid TDS? Yes—but only if:
- Each tenant pays separately (e.g., ₹30,000 each)
- Payments are made directly from their bank accounts
- The rental agreement clearly documents the split—either through separate agreements or a joint one outlining each person’s share
However, if one person pays the full ₹60,000 and is later reimbursed, they alone become liable to deduct TDS on the entire amount.
What Tenants Must Do
- Deduct 2% TDS on total annual rent (once a year)
- File Form 26QC on the income tax website
- Download Form 16C after filing
- Issue Form 16C to your landlord for their records
Chartered accountants note that penalties may be waived if compliance is completed before the tax department issues a notice. So, prompt voluntary action is key.
Renting a high-end apartment might seem simple but if your monthly rent crosses ₹50,000, tax compliance isn’t optional. Deducting and filing TDS correctly is a one-time task that could save you thousands in fines and interest.
