🏠 Attention Tenants! Navigating TDS on Rent Payments Under Section 194-IB 💼

Are you paying monthly rent exceeding ₹50,000? If so, it’s crucial to understand your obligations under Section 194-IB of the Income Tax Act, 1961. This provision mandates certain individuals and Hindu Undivided Families (HUFs) to deduct Tax Deducted at Source (TDS) on rent payments. Let’s break down the essentials to ensure you’re compliant and avoid potential penalties.

🔑 Key Highlights of Section 194-IB:

1️⃣ Who Needs to Deduct TDS?

Applicability: Individuals or HUFs whose total sales, turnover, or gross receipts from business do not exceed ₹1 crore, or receipts from profession do not exceed ₹50 lakh in the preceding financial year. Essentially, this applies to those not liable for tax audit under Section 44AB.
Threshold: TDS deduction is required if the monthly rent exceeds ₹50,000.

2️⃣ What Constitutes ‘Rent’?

Rent refers to any payment, by whatever name called, made under a lease, sub-lease, tenancy, or any other agreement or arrangement, for the use of land, building, or both.

3️⃣ TDS Rate and Effective Dates

Prior to October 1, 2024: The TDS rate was 5%.
From October 1, 2024, Onwards: The TDS rate has been reduced to 2% as per the Union Budget 2024 amendments.

4️⃣ When to Deduct TDS?

Ongoing Tenancy: Deduct TDS at the time of credit or payment of rent for the last month of the financial year (i.e., March), whichever is earlier.
Termination of Tenancy Mid-Year: If the tenancy concludes before the financial year’s end, deduct TDS at the time of credit or payment of rent for the last month of tenancy, whichever is earlier.

5️⃣ How to Deduct and Deposit TDS?

No TAN Required: Tenants are not required to obtain a Tax Deduction Account Number (TAN). The deduction can be made using the tenant’s Permanent Account Number (PAN).
Deposit Timeline: The deducted TDS must be deposited to the credit of the Central Government within 30 days from the end of the month in which the deduction was made. This is done through a challan-cum-statement in Form 26QC, filed electronically.
TDS Certificate: After depositing the TDS, the tenant must provide the landlord with a TDS certificate in Form 16C within 15 days from the due date of furnishing Form 26QC.

6️⃣ Consequences of Non-Compliance

Failing to deduct or deposit TDS can lead to:

Interest Penalties: Interest at 1% per month for failure to deduct and 1.5% per month for failure to deposit after deduction.
Penalties: A penalty equal to the amount of tax that should have been deducted may be imposed.
Prosecution: In severe cases, prosecution with imprisonment ranging from 3 months to 7 years may be initiated.

📚 Illustrative Example:

Scenario:

Tenant: Mr. Sharma
Monthly Rent: ₹60,000
Tenancy Period: April 2025 to March 2026

TDS Calculation:

Total Annual Rent: ₹60,000 x 12 = ₹7,20,000
TDS Amount: 2% of ₹7,20,000 = ₹14,400

Procedure:

Deduct TDS: In March 2026, Mr. Sharma deducts ₹14,400 from the rent payable.
Deposit TDS: By April 30, 2026, he deposits the ₹14,400 using Form 26QC.
Issue TDS Certificate: By May 15, 2026, he provides Form 16C to his landlord.

📝 Conclusion

Compliance with Section 194-IB is essential for tenants paying substantial rent amounts. Understanding the nuances of TDS deduction, timely deposits, and accurate documentation will help avoid legal complications and ensure smooth financial operations.

📞 Need Expert Assistance?

Navigating tax regulations can be complex, but Dhan Tax is here to help! Our team of professionals can guide you through TDS compliance and other tax-related matters.