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Introduction

Paying rent is something most of us do every month. But many tenants don’t realise that they may need to deduct TDS (Tax Deducted at Source) on the rent they pay. Many think TDS is only for businesses, but even individuals can have this responsibility.

Under the Income-tax Act, Sections 194-IB and 195 cover rent TDS. Section 194-IB applies when the rent is paid to a resident landlord and the monthly rent is above ₹50,000. Section 195 applies when the rent is paid to a non-resident landlord, with no minimum rent.

If you miss deducting TDS, it can lead to interest, penalties, and even being treated as a defaulter. But the law also gives ways to fix the mistake. You can pay interest, get a certificate from a Chartered Accountant, and deposit the TDS to regularise the situation.

This article is a step-by-step guide to help you understand TDS on rent, what to do if you missed it, and how to stay compliant in the future.

Understanding Rent TDS

Have you ever thought about whether you need to pay tax when you pay rent? That’s where TDS, or Tax Deducted at Source, comes in. Simply put, TDS is a system where the person making a payment, like your salary, professional fees, or rent, deducts a small portion as tax before paying the other party and deposits it with the government.

When it comes to rent, this means that as a tenant, you may have to deduct a certain percentage of the rent you pay and deposit it with the Income-tax Department. Many people assume that TDS is only for businesses, but that’s not true. Even individuals, families, and professionals can be responsible for it, depending on the situation. Ignoring this can lead to penalties, interest, and unnecessary stress with the tax department.

Who needs to deduct Rent TDS?

• Salaried or self-employed, if you are paying rent above the threshold.
  
• HUfs, if they are paying rent to the landlord.
  
• Anyone paying rent in connection with their work or business activities.
  

Resident vs. Non-Resident Landlords

• Resident landlords: TDS is required under Section 194-IB, but only if your monthly rent exceeds ₹50,000.
  
• Non-resident landlords: TDS falls under Section 195, and there’s no minimum limit. Even small rent amounts are subject to TDS if the landlord lives outside India.
  

Section 194-IB: TDS on Rent for Resident Landlords

If you are paying rent to a landlord who lives in India, Section 194-IB is the rule you need to follow. It covers TDS on rent for residential properties, especially when the monthly rent is above ₹50,000.

Section 194-IB applies when:

• You pay rent of over ₹50,000 per month.
  
• Your landlord is a resident here.
  
• The property is residential, not commercial.
  

If these conditions are met, as a tenant, you are required to deduct TDS on rent. This is where many people get confused: even though you’re an individual or a salaried professional, you are responsible for rent TDS, just like a business would be.

How much TDS do you need to deduct?

• Up to 30th September 2024: 5% of the rent
  
• From 1st October 2024 onwards: 2% of the rent

When and how to pay TDS on rent

• Time of deduction: You must deduct TDS at the time of paying or crediting the rent for the last month of the financial year, or the last month of the tenancy if it ends earlier.
  
• Deposit: The deducted TDS must be deposited using Form 26QC, within 30 days of deduction.
  

Section 195: TDS on rent for landlords who are not residents

This section talks about tds on rent paid to a landlord who is not a resident of India. This section says that there is no minimum threshold and even small payments requir tds if the landlord is not a resident.

Who it applies to

• Any tenant making a rent payment to a non-resident landlord.
• Can be an individual, HUF, or professional.
  

TDS Rate

TDS rate may vary due to any DTTA (Double Taxation Avoidance Agreement) your country has with India otherwise, it is usually around 30% + surcharge and cess. This means your rent TDS could be lower if the landlord’s country has a favourable treaty.

When and how to deduct

• TDS must be deducted when the rent is credited or paid, whichever happens first.
  
• You deposit the deducted TDS using Challan ITNS-281, and report it in the quarterly statement Form 27Q, within 7 days from the end of the month of deduction.
  

Legal Consequences of Missing Rent TDS

Missing TDS on rent is not treated as a small mistake under tax laws. Whether the default is under Section 194-IB or Section 195, the tenant can face multiple consequences if TDS is not deducted or deposited on time.

1. Treated as an Assessee in Default

Missing rent TDS means the tax department can shift the tax responsibility to you instead of the landlord.

2. Interest Liability

Interest is charged even if the mistake was unintentional:

• 1% per month for failure to deduct TDS
• 1.5% per month for failure to deposit TDS after deduction

Interest is calculated from the date TDS was supposed to be deducted until the date it is actually paid.

3. Penalties

Missing rent TDS can also attract penalties:

• Section 271C: Penalty equal to the amount of TDS not deducted
  
• Section 221: Penalty up to the amount of TDS in default
  
• Section 271H: Penalty ranging from ₹10,000 to ₹1,00,000 for non-filing or late filing of TDS returns

4. Late Fees for TDS Returns

If you file a TDS statement after the deadline, you get charged with a late fee of 200 rupees per day u/s 234E from the last date of filing to the date you finally filed.

How to Fix Missed Rent TDS (Step-by-Step Guide)

The following steps you can take if you have received a notice for not deducting TDS on rent are:

1. You need to check with the landlord’s tax compliance. Confirm whether the landlord has included the rental income in their income tax return and paid the due tax. If yes, you can submit Form 26A, certified by a Chartered Accountant, to avoid being treated as a defaulter.

2. Pay applicable interest. Even when Form 26A is filed, interest under Section 201(1A) must be paid from the date TDS was deductible till the date the landlord filed their return.

3. Deduct and deposit TDS if tax is unpaid. If the landlord has not paid tax on the rent, deduct the applicable TDS immediately, deposit it along with interest, and complete the required filings.

4. Correct related personal tax claims, if any. If you claimed HRA without complying with rent TDS provisions, consider filing an updated return separately to correct the claim and reduce future scrutiny.

How to Avoid Missing Rent TDS in the Future

1. Check TDS Applicability Before the Tenancy Starts, and before signing the rent agreement:

• Just confirm whether the landlord is resident or non-resident
  
• Also, check if the monthly rent exceeds ₹50,000
  
• And identify whether Section 194-IB or Section 195 applies
  

2. Collect and Keep Proper Documents

• Rent agreement
  
• Landlord’s PAN
  
• Proof of landlord’s residential status (especially for NRIs)
  

3. Set Clear Reminders for Rent TDS

• or Section 194-IB, set a reminder for the last month of the financial year or tenancy and for Section 195, ensure TDS is deducted every time rent is paid or credited
  

4. Deposit TDS Immediately

• Deposit rent TDS on the same day or within a few days of deduction, instead of waiting for the due date
  
• Early payment reduces the risk of interest, late fees, and penalties
  

5. Review TDS Before Filing Your ITR

• Recheck rent payments
  
• Ensure TDS has been deducted and deposited correctly
  
• Confirm that challans and forms are in order
  
  

Common Mistakes Tenants Make with Rent TDS

Most rent TDS defaults happen because of confusion, wrong assumptions, or small oversights. Some of the most common mistakes are:

1. Assuming TDS Applies Only to Businesses

Many salaried individuals believe TDS is only for companies or professionals. But what they don’t know is they also must deduct TDS on rent u/s 194-IB,195 if conditions are met.

2. Ignoring TDS for Residential Properties

The person who is paying rent above 50,000 rupees needs to know that it can attract TDS. Most people are not very aware of it

3. Not Checking the Landlord’s Residential Status

Rent paid to a non-resident attracts Section 195, which has no threshold and higher TDS rates.

4. Missing the Timing of Deduction

Under Section 194-IB, TDS is deducted once a year, in the last month of the financial year or tenancy. Many tenants forget this one-time deduction and end up defaulting.

5. Delaying TDS Deposit Until the Due Date

Waiting until the last day to deposit TDS increases the risk of missing deadlines. Depositing rent TDS immediately after deduction is always safer.

Practical Examples of Rent TDS Compliance and Defaults

Example 1: Resident Landlord (TDS Missed u/s 194-IB)

Rohit's Rent: 60,000
Landlord's Status: Indian

Since rent exceeds 50000, section 194-IB will be applied. Rohit receives an Income Tax notice cause he paid rent for the whole year without deducting TDS

Ways to fix the issue

• He checks whether the landlord has declared the rental income in their ITR
• If tax has been paid, Rohit obtains Form 26A certified by a CA
• He pays interest under Section 201(1A)
• Once Form 26A is accepted, Rohit is not treated as an assessee in default
  

Example 2: Non-Resident Landlord (Section 195 Applies)

Neha’s Rent: 40000
Landlord’s Residential Status: Non-resident

Section 195 will be applied because the landlord is a non-resident. Neha must deduct TDS on rent at the applicable rate at the time of rent payment and deposit it using Challan ITNS-281.

What happens if she misses TDS:

• Neha may be treated as an assessee in default
• Interest and penalties may apply
• She will need to deduct and deposit TDS with interest to regularise the default
  
  

Conclusion

Missing TDS on rent is very common, especially among individual tenants who don’t realise that tax rules apply to them too. Many people assume TDS is only a business requirement. But missing rent TDS can invite interest, penalties, and unexpected notices from the Income-tax Department if you fall u/s 194-IB, 195.

The law helps you most of times as you can submit Form 26A and pay the interest for the lapse that has happened if the landlord already declared rental income and paid tax on it. Just be proactive on these things.

Still, these solutions are meant to correct mistakes, not replace proper compliance. The safest approach is to get things right from the start: check whether TDS applies, confirm the landlord’s residential status, deduct rent TDS on time, and deposit it without delay. A little awareness and timely action can save tenants from penalties, stress, and tax hassles, making every tax season much smoother. Click here to book your Free tax assessment call today
 

Frequently Asked Questions

1. Is the PAN of the landlord mandatory for rent TDS?

Yes. If the landlord does not provide PAN, TDS may be deducted at a higher rate as per applicable provisions.

2. I paid rent through a broker. Do I still deduct TDS?

Yes. TDS is deducted on rent paid to the landlord, regardless of broker involvement.

3. I deposited TDS late but filed the return on time. Is the interest still payable?

Yes. Interest applies till the actual date of TDS payment.