Paying over ₹50,000 a month in rent? Pay your TDS by April 30 to avoid an income tax notice

Most salaried tenants assume that deducting TDS is only their employers’ responsibility. But if you’re paying more than ₹50,000 a month in rent, even once during the financial year, you too may have a TDS obligation.

This rule, aimed at plugging revenue leakages from fake House Rent Allowance (HRA) claims and undeclared rental income, has been in place since 2017. Still, nearly 78.4% of eligible tenants remain unaware or non-compliant, inviting penalties, interest, and even prosecution in extreme cases.

With the April 30 deadline to pay TDS on rent for FY 2024-25 approaching, this is the right time to understand what’s at stake.

Understanding the rule: When and how TDS on rent applies

Under Section 194IB of the Income Tax Act, 196, individuals and Hindu Undivided Families (HUFs) must deduct 2% TDS on rent if the monthly amount being paid exceeds ₹50,000.

This requirement applies whether or not the tenant claims HRA and irrespective of whether the tenancy lasts for the full year or part of it.

The law mandates a one-time deduction of TDS, either while paying the rent for the month of March or the final month of tenancy, whichever comes earlier.

The deducted amount must then be deposited with the government through Form 26QC. For the month of March 2025, this is required to be done by April 30, 2025.

If you vacated earlier, the deduction should be made with your last rent payment, and the TDS must be deposited within 7 days of the subsequent month.

However, the government had to make sure that individuals falling under this section do not have to undergo a severe compliance burden. Hence, individuals who are required to make this deduction do not need to file a TDS return, which an otherwise eligible deductor has to.

To ease liquidity, the government reduced the applicable TDS rate from 5% to 2%, effective from October 1, 2024.

The following examples illustrate how this works in practice:

Note: A conservative view that the TDS rate of 5% is applicable until rent paid up to September 30, 2024 and 2% for the period thereafter may also be taken. Kindly consult your tax advisor.

As seen above in Case A, the tenant is required to deduct ₹14,400 as TDS when paying his March 2025 rent and deposit the same via Form 26QC by April 30, 2025. Also, monthly TDS or quarterly return filings are not required. Similarly, tenants on shorter leases are not exempt.

In case B, the tenant paid rent for only eight months but still crossed the ₹50,000 threshold. Therefore, 2% interest on the total rent of ₹4.4 lakh must be deducted and deposited after deducting it from the January payment.

Penalties if you miss it: Interest rates, prosecution & more

Failure to deduct or deposit TDS can lead to serious consequences under the Income Tax Act. The tenant may be treated as an ‘assessee in default’ under Section 201, attracting interest at 1% per month for non-deduction and 1.5% per month for non-payment after deduction as per Section 201(1A).

Additionally, a late filing fee of ₹200 per day may be levied under Section 234E for delay in filing the TDS statement but limited to the amount of TDS. Penalties up to ₹1 lakh under Section 271H can also be imposed for failure to file or furnish incorrect TDS returns. Furthermore, the entire unpaid TDS amount can be recovered from the tenant. In cases where TDS has been deducted but not deposited, prosecution under Section 276B may also be initiated, with punishment ranging from three months to seven years of rigorous imprisonment, along with a fine.

Misconceptions and how many tenants often ignore the rule

Despite being in effect for years, the rule remains poorly understood. Many salaried individuals believe that TDS only applies to companies or professionals under audit. Others think that not claiming HRA exempts them from TDS. Some believe that a single month’s rent of more than ₹50,000 doesn’t trigger liability. All of these are incorrect assumptions.

A survey by 1 Finance Magazine on high-value rent-paying Individuals across Tier 1 cities in India found that 78.4% of them are non-compliant with this provision.

The income tax department is reported to be sending notices to individuals who have claimed an HRA of over ₹50,000 per month but have not deducted/deposited the appropriate TDS under this provision. Hence, it becomes critical for you to get compliant now if this law is applicable in your case.