TDS on Rent under Income Tax Act: A Comparative Study of Section 194-IB and Section 194-I
Section 194-IB of the Income Tax Act requires a person to deduct TDS when paying high rent to a landlord. If an individual or HUF pays rent of more than Rs 50,000 per month, they must deduct tax at source before making the payment to the landlord. This rule applies even to salaried individuals who are paying rent and claiming House Rent Allowance (HRA).
Applicability of Section 194IB (TDS on Rent)
This section applies to individuals or Hindu Undivided Families (HUF) who do not need a tax audit under the Income Tax Act.
TDS Rate: TDS must be deducted at 2% of the rent (earlier 5%, reduced to 2% with effect from 1 October 2024).
When to deduct TDS: TDS should be deducted whichever happens earlier.
- When the rent for the last month of the financial year is recorded in the books, or at the time of making the payment.
- If the tenant vacates the property during the year, TDS is deducted from the rent of the last month of tenancy.
TAN (Tax Deduction Account Number) requirement: The person deducting TDS does not need to obtain a TAN (Tax Deduction Account Number) for this section.
Form for payment and return:
- TDS must be reported using Form 26QC.
- This form is PAN-based. It must be filed within 30 days from the end of the month in which TDS is deducted, along with the payment (challan).
TDS Certificate:
- The certificate given to the landlord is Form 16C.
- It must be issued within 15 days from the due date of filing Form 26QC.
Interest for Delay:
- 1% per month will be imposed if TDS is not deducted.
- 1.5% per month will be imposed if TDS is deducted but not deposited with the government.
Penalty for Late Filing:
- There is a Rs 200 per day penalty if the return (Form 26QC) is filed late.
- The maximum penalty cannot exceed the amount of TDS.
Key Differences Between Section 194IB and 194I
| Particular | Section 194-IB | Section 194-I |
| Applicable to | Individual/HUF not liable for tax audit | Companies, firms, governments, and individuals/HUF are liable to tax audits. |
| Rent threshold | Rs 50,000 per month | Increased to Rs 50,000 per month (Starting from 01/04/2026) |
| TDS Rate | 2% | 10% for land/building/furniture, 2% for plant & machinery |
| TAN | Not required | Mandatory |
| TDS return | Form 26QC | Form 26Q |
| TDS certificate | Form 16C | Form 16A |
| Deduction timing | Last month of FY or tenancy | Every month at payment/credit |
Section 194IB (According to the Income Tax Act, 1961)
Payment of rent by certain individuals or Hindu undivided families
(1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent of such income as income-tax thereon.
(2) The income tax referred to in sub-section (1) shall be deducted from such income at the time of credit of rent for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.
Explanation. For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.
Rule 30 (2B)
Notwithstanding anything contained in sub-rule (1) or sub-rule (2), any sum deducted under section 194-IB shall be paid to the credit of the Central Government within a period of thirty days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QC.
Rule 30 (6B)
Where tax deducted is to be deposited accompanied by a challan-cum-statement in Form No. 26QC, the amount of tax so deducted shall be deposited to the credit of the Central Government by remitting it electronically within the time specified in sub-rule (2B) into the Reserve Bank of India or the State Bank of India or any authorised bank.
Rule 31(3B)
Notwithstanding anything contained in sub-rule (1) or sub-rule (2) or sub-rule (3), every person responsible for deduction of tax under section 194-IB shall furnish the certificate of deduction of tax at source in Form No. 16C to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No. 26QC under rule 31A after generating and downloading the same from the web portal specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or the person authorised by him.
