House rent above Rs 50,000? Here's the TDS rule you need to know

India Today

2 days ago

If you're paying more than Rs 50,000 a month in rent, there's a tax compliance rule that's easy to miss, but costly to ignore. Under Section 194-IB of the Income Tax Act, even salaried individuals are required to deduct tax at source (TDS) before paying rent and deposit it with the government.This rule is often misunderstood as applicable only to businesses or those under tax audit. But it also covers individuals, including salaried tenants. Anyone paying rent above the Rs 50,000 threshold in a financial year must deduct 2% TDS and file the necessary forms.advertisementThe deduction must be made once during the year—either in March or the final month of the tenancy, whichever comes earlier. The tenant is then required to file Form 26QC and provide Form 16C to the landlord.
Non-compliance can trigger serious consequences. According to TaxBuddy.com, a tax compliance platform, one salaried individual named Abhishek paid Rs 55,000 per month in rent but failed to deduct TDS. As a result, he was issued a penalty of Rs 1,00,000 by the income tax department.'Abhishek, a salaried person, was asked to pay a penalty of Rs 1,00,000 by income tax. His mistake? He paid Rs 55,000/month in rent but didn't deduct TDS. Even salaried people need to deduct TDS at times,' TaxBuddy.com stated in a LinkedIn post.Another case, also highlighted by the platform, involved Rohan, a salaried employee who had been paying Rs 60,000 in rent since April 2022. He failed to deduct and deposit TDS for two consecutive financial years. When he finally complied in April 2025, he ended up paying Rs 37,000 in late fees and interest—more than the TDS amount itself.TDS obligations are often overlooked in personal financial planning. Yet failure to comply can lead to a late fee of Rs 200 per day under Section 234E, capped at the amount of TDS due. Interest accrues at 1% per month for failure to deduct and 1.5% for failure to deposit, under Section 201(1A). Penalties between Rs 10,000 and Rs 1,00,000 can be levied under Section 271H, and prosecution is also possible under Section 276B, carrying a jail term of three months to seven years.Section 194-IB is one of several personal-payment-related TDS provisions. Under Section 194-IA, buyers must deduct 1% TDS on property purchases exceeding Rs 50 lakh. Section 194M requires individuals to deduct 2% TDS on personal payments exceeding Rs 50 lakh made to contractors, professionals or agents. Meanwhile, Section 194S applies to peer-to-peer crypto transactions conducted outside exchanges, mandating a 1% TDS.Tax authorities have been tightening scrutiny on high-value personal payments. As TaxBuddy.com's examples show, routine transactions like paying rent can easily invite penalties if compliance is missed.For tenants living in high-rent homes, the line between a routine payment and a tax lapse can be thinner than it seems, and ignoring it can invite penalties that quickly snowball.- Ends