Paying rent above ₹50,000 per month has significant income-tax implications for tenants, even if they are salaried individuals with no business income. To widen the tax base and track high-value rental transactions, the Income Tax Act introduced Section 194-IB, which mandates TDS on rent paid by certain individuals and Hindu Undivided Families (HUFs).
Many taxpayers wrongly assume that TDS on rent applies only to businesses, but Section 194-IB clearly brings non-business individuals under the tax net. This provision is especially relevant in metro cities like Gurgaon, Delhi, Mumbai, Bengaluru, and Pune, where residential rents frequently exceed ₹50,000 per month.
This blog explains who is required to deduct TDS under Section 194-IB, when it applies, how TDS is deducted and deposited, certificate issuance, penalties, and practical compliance guidance.
Why Section 194-IB Was Introduced
Before Section 194-IB, TDS on rent under Section 194-I applied mainly to businesses and professionals. High-value residential rentals paid by salaried individuals remained largely unreported, creating a compliance gap.
To address this, the government introduced Section 194-IB to ensure tax transparency in the real estate rental market, especially in urban areas where landlords earn substantial rental income. This provision ensures that landlords disclose rental income properly, while tenants act as a withholding agent for the government.
Who Is Required to Deduct Tax Under Section 194-IB?
As per Section 194-IB, any Individual or Hindu Undivided Family (HUF) is required to deduct tax if they are paying rent to a resident landlord, provided certain conditions are met.
This section applies even if the individual:
- Is not engaged in business or profession
- Is only earning salary, pension, or other income
- Is not required to deduct TDS under Section 194-I
However, individuals or HUFs whose turnover exceeds ₹1 crore (business) or ₹50 lakh (profession) fall under Section 194-I instead, not Section 194-IB.
When Is Section 194-IB Applicable?
TDS under Section 194-IB becomes applicable when monthly rent exceeds ₹50,000 or part of a month during a financial year. The provision applies only when the landlord is a resident of India.
If rent is ₹50,000 or below per month, no TDS is required, even if the annual rent is substantial.
Rate of TDS Under Section 194-IB
The TDS rate under Section 194-IB is 2% of the rent payable.
Earlier, the rate was 5%, but it has been reduced to 2% to ease compliance and reduce cash flow pressure on tenants.
Importantly, no surcharge or cess is added, and TAN is not required to deduct TDS under this section.
When Should TDS Be Deducted?
Unlike regular monthly TDS provisions, TDS under Section 194-IB is deducted only once in a financial year.
The deduction is made at:
- The time of credit or payment of rent for the last month of the financial year, or
- The last month of tenancy, if the property is vacated during the year
Whichever occurs earlier.
This unique structure simplifies compliance and avoids monthly deductions.
What Is Form 26QC and When Is It Filed?
Once TDS is deducted, the tenant must deposit the tax using Form 26QC, which is a challan-cum-statement.
Form 26QC must be filed within 30 days from the end of the month in which TDS is deducted. Payment is made online through the income-tax portal.
No separate TDS return is required, making compliance simpler for salaried individuals.
Issuance of TDS Certificate – Form 16C
After filing Form 26QC, the tenant is required to issue Form 16C (TDS Certificate) to the landlord.
Form 16C must be:
- Generated from the income-tax portal
- Issued within 15 days from the due date of filing Form 26QC
This certificate serves as proof of tax deduction and enables the landlord to claim credit while filing their income-tax return.
What Happens If PAN Is Not Provided by the Landlord?
If the landlord fails to provide PAN, Section 206AA applies, and TDS is deducted at a higher rate.
However, Section 194-IB includes a protective provision stating that TDS cannot exceed the rent payable for the last month of the financial year or tenancy. This prevents excessive deduction due to non-availability of PAN.
Penalty for Failure to Issue TDS Certificate
Failure to issue Form 16C within the prescribed time attracts penalty under Section 272A.
Non-compliance may also result in notices from the Income Tax Department, creating unnecessary stress for taxpayers.
Meaning of “Rent” Under Section 194-IB
For the purpose of this section, rent includes any payment made under a lease, sub-lease, tenancy, or any arrangement for the use of:
- Land
- Building
- Land and building together
The definition is broad and covers both residential and commercial properties.
Practical Challenges Faced by Taxpayers
Many tenants are unaware of Section 194-IB until they receive notices from the tax department. Common issues include:
- Non-deduction of TDS due to lack of awareness
- Late filing of Form 26QC
- Errors in PAN or rent details
- Failure to issue Form 16C
These errors can be avoided with proper tax planning and timely compliance.
Importance of Professional Assistance
While Section 194-IB appears simple, practical execution often creates confusion, especially for first-time deductors. Professional guidance ensures:
- Correct applicability check
- Accurate computation of TDS
- Timely filing of Form 26QC
- Proper issuance of Form 16C
- Avoidance of penalties and interest
Taking expert advice ensures peace of mind and smooth compliance.
FAQs on Section 194-IB
Is Section 194-IB applicable to salaried individuals?
Yes. Even salaried individuals with no business or professional income must deduct TDS if rent exceeds ₹50,000 per month.
Is TAN required for deduction under Section 194-IB?
No. TAN is not required. PAN of tenant and landlord is sufficient.
Does this section apply to non-resident landlords?
No. Section 194-IB applies only when rent is paid to a resident landlord. Rent paid to NRIs attracts TDS under Section 195.
Is TDS deducted every month?
No. TDS is deducted only once, in the last month of the financial year or tenancy.
What if rent is paid jointly by two tenants?
If individual rent per tenant exceeds ₹50,000 per month, TDS provisions apply separately.
Can the landlord claim credit of TDS?
Yes. The landlord can claim TDS credit based on Form 26AS and Form 16C.
Final Words
Section 194-IB is a crucial provision that brings high-value rental transactions into the tax compliance framework, even for individuals not engaged in business or profession. With rising rental values in cities like Gurgaon and other metro areas, compliance with this section has become increasingly relevant.
Understanding the applicability, timelines, and procedural requirements is essential to avoid penalties and future tax complications. Proper planning and professional support can make the process smooth, compliant, and stress-free.
If you are paying rent above ₹50,000 per month and are unsure about TDS obligations under Section 194-IB, it is always advisable to seek expert guidance to ensure complete and accurate compliance.
