Most salaried employees know TDS is deducted from their salary. But many do not realise they are also responsible for deducting TDS when they pay rent. Under Section 194-IB of the Income Tax Act, any individual or HUF (not liable to tax audit) who pays monthly rent exceeding ₹50,000 must deduct TDS at the time of paying rent.
Getting this wrong, even innocently, can result in penalties, interest charges, and a demand notice from the Income Tax Department.
Who Must Deduct TDS on Rent?
Section 194-IB applies to individual tenants and HUFs who:
- Pay rent for land, building, or furniture/fittings
- Where the monthly rent exceeds ₹50,000
- Are not required to get their accounts audited under Section 44AB (i.e., not businesses with turnover above ₹1 crore)
This covers the vast majority of salaried employees and self-employed individuals renting residential or commercial premises. If your annual rent is ₹6 lakh or more (₹50,000/month), this section applies to you.
TDS Rate Under Section 194-IB
The TDS rate is 2% of the rent amount (reduced from 5% effective October 1, 2024 as per Budget 2024). If your landlord does not have a PAN, TDS must be deducted at 20%.
For example, if you pay ₹70,000/month in rent:
TDS = ₹70,000 × 2% = ₹1,400 per month
This amount is deducted from the rent you pay and deposited with the government on behalf of the landlord.
When Must TDS Be Deducted?
Unlike companies and businesses that deduct TDS monthly, individual tenants under Section 194-IB deduct TDS only once a year, in March (the last month of the financial year), or when vacating the property, whichever is earlier.
So for FY 2025-26, the TDS is deducted in March 2026 and is calculated on the total rent paid during the year. If you vacate the property in August 2025, you deduct TDS at that point on the rent paid so far during the year.
How to Deposit TDS: Form 26QC
Individual tenants do not need a TAN (Tax Deduction Account Number) to deposit TDS under Section 194-IB. Instead, you file Form 26QC on the TIN-NSDL website and pay the TDS through net banking or over the counter at authorised bank branches.
Steps to deposit TDS:
- Visit tin.tin.nsdl.com/etds-etcs/ → select "TDS on Rent of Property (Form 26QC)"
- Enter your PAN and your landlord's PAN
- Enter the total rent paid during the year and the TDS amount
- Pay the TDS amount online (challan is generated automatically)
- File Form 26QC within 30 days from the end of the month in which TDS was deducted
After filing, download Form 16C (the TDS certificate) from TRACES and give it to your landlord. Your landlord can then claim this TDS against their income tax liability.
Deadline for Filing Form 26QC
Form 26QC must be filed within 30 days from the end of the month in which TDS is deducted. For rent deducted in March 2026, the deadline is April 30, 2026. Missing this deadline attracts a late filing fee of ₹200 per day under Section 234E.
What Happens If You Do Not Deduct TDS?
If you fail to deduct TDS on rent:
- Interest under Section 201(1A): 1% per month from the date TDS was deductible to the date it was actually deducted, plus 1.5% per month from the date of deduction to the date of deposit
- Penalty under Section 271C: Amount equal to the TDS not deducted (this is discretionary)
- Your HRA claim in your own ITR could be disallowed if the tax department cross-matches rent receipts with the landlord's income
What About the Landlord's PAN?
Always collect your landlord's PAN before making TDS deposits. If your landlord refuses to provide PAN, you are required to deduct TDS at 20% instead of 2%. Without the correct PAN, Form 26QC cannot be properly filed and the landlord cannot claim credit for the TDS in their ITR.
Can You Claim the Full Rent for HRA?
Yes, you can claim HRA exemption on the full rent paid. TDS deduction under Section 194-IB does not reduce the rent amount eligible for HRA calculation. It is simply a tax collection mechanism. The rent paid (before TDS deduction) is what you report for HRA purposes.
Use our TDS calculator to quickly compute TDS on any rent amount, or check our TDS on property tool for property transactions.
Frequently Asked Questions
I pay ₹55,000 rent per month. How much TDS do I deduct in March?
You deduct TDS once a year in March on the total annual rent. Total rent for FY 2025-26 = ₹55,000 × 12 = ₹6,60,000. TDS = ₹6,60,000 × 2% = ₹13,200. You pay ₹41,800 in March and deposit ₹13,200 as TDS via Form 26QC by April 30.
What if my landlord is a company or firm?
Section 194-IB applies only to rent paid to individuals or HUFs. If your landlord is a company, firm, or co-operative society, different TDS provisions (Section 194-I) apply, but those sections generally apply only to payers who are companies or get their accounts audited. Individual tenants paying rent to companies for residential property are typically not covered. Consult a CA if you are in this situation.
My rent was ₹45,000 per month, but my landlord raised it to ₹55,000 from January. Does TDS apply from January?
Yes. Once the monthly rent crosses ₹50,000, Section 194-IB is triggered. You must deduct TDS on the total rent paid from the month the rent exceeded ₹50,000. If TDS was not deducted on previous months when rent was ₹45,000, no liability arises for those months.
Do I need to deduct TDS if I pay rent to my parents?
Yes, Section 194-IB applies regardless of your relationship with the landlord. If you claim HRA by paying rent to your parents and the rent exceeds ₹50,000/month, TDS must be deducted. In practice, many people skip this, but it is legally required and the department can flag it during scrutiny.
