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In India, individuals paying rent in respect of a rented residential house may also be required to deduct Tax Deducted at Source (TDS). While many think TDS is only a business responsibility, Sections 194-IB and 195 of the Income-tax Act, 1961, impose this duty on certain tenants, including salaried individuals and professionals.

Unfortunately, some tenants—often out of sheer ignorance—fail to deduct and deposit this TDS. This oversight can result in penalties, interest, and being treated as an assessee in default. But there are ways to regularise the situation.

1. Understanding the Law:

Section 194-IB (Resident Landlord)

• Applicable when: Monthly rent exceeds ₹50,000.
• TDS Rate:
• 5% up to 30/09/2024.
• 2% with effect from 01/10/2024.
• Time of Deduction: At the time of credit or payment of the rent for the last month of the financial year, or the last month of the tenancy if the tenancy expires before the last month of the financial year.
• Deposit Deadline: Within 30 days from the end of the month in which deduction is made, using Form 26QC.

Section 195 (Non-Resident Landlord):

• Applicable when: Rent is paid to a non-resident (no threshold).
• TDS Rate: As per rates in force (30% + surcharge + cess, subject to DTAA).
• Time of Deduction: At the time of credit or payment, whichever is earlier.
• Deposit Deadline: Within 7 days from the end of the month of deduction, using Challan Form ITNS-281 and reported through the quarterly statement in Form 27Q

2. The Problem – Non-Deduction of TDS

If you fail to deduct TDS, you may be:

• Deemed an assessee in default under Section 201(1).
• Liable for interest under Section 201(1A).
• Liable for penalty under Section 271C.
• Liable for penalty under Section 221, which may extend up to the amount of TDS required to be deducted.
• Liable for penalty under Section 271H (minimum ₹10,000 – maximum ₹1,00,000).
• Liable for fees under Section 234E – ₹200 per day of default (maximum up to the TDS amount).

3. The Solution – Regularising the Default:

The first proviso to Section 201(1) can protect you from being treated as an assessee in default if the landlord has already paid tax on the rent income.

Steps to fix the issue:

• Confirm landlord’s tax compliance – ensure that in the return filed under Section 139, the landlord has included rent income and paid the tax due.
• Obtain a Certificate in Annexure A of Form 26A from a Chartered Accountant – certifying landlord compliance under the first proviso to Section 201(1) and submit it via the TRACES portal.
• Pay interest under Section 201(1A) – from the due date of deduction till the landlord’s return filing date.
• If the landlord hasn’t paid tax on rent – deduct TDS immediately, pay with interest, and deposit using the applicable form.

If the conditions of the first proviso to Section 201(1) are fulfilled, penalty under Section 221 will not be imposable unless the Assessing Officer establishes that such failure was without good and sufficient reasons. Similarly, penalties under Sections 271C and 271H will not be imposable if the payer proves that there was a reasonable cause for such default.

4. Prevention for Future Years:

• Check applicability before the tenancy starts.
• Maintain the rent agreement & landlord’s PAN/residential status proof.
• For Section 194-IB – set a reminder for the last month of the financial year (or last month of tenancy) for deduction. As a best practice, deposit the TDS through Form 26QC on the same day, instead of waiting for the due date.
• For Section 195 – ensure TDS is deducted at the rate applicable on the date of rent payment. To ensure compliance, pay the TDS on the same day instead of waiting for the due date.

5. Key Takeaway:

Missing TDS on rent can be fixed if the landlord has already paid tax—via Form 26A certification and interest payment. However, timely compliance avoids legal and financial headaches. The best approach is deducting and depositing TDS on time, keeping documentation in order, and avoiding unnecessary penalties and disputes.

Quick Reference Table:

If Missed to deduct TDS:

5. Conclusion:

Failing to deduct TDS on rent—whether under Section 194-IB or Section 195—can lead to interest, penalties, and being tagged as an assessee in default. However, the law provides a remedial path: if the landlord has already paid tax on the rental income, you can regularise the lapse by obtaining Form 26A certification and paying applicable interest.While this relief can save you from harsher consequences, it should be seen as a fallback option, not a routine practice. The simplest and safest approach is timely TDS deduction and deposit, ensuring you remain fully compliant and avoid unnecessary legal and financial stress.

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Disclaimer:

The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. Readers are advised to consult with a qualified tax advisor or legal professional for specific advice tailored to their individual circumstances, particularly regarding reassessment proceedings and claiming refunds. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the content of this article.