Section 194IB of the Income Tax Act, 1961 governs the deduction of Tax Deducted at Source (TDS) on rent paid by individuals or Hindu Undivided Families (HUFs) to a resident landlord. This provision was introduced to ensure tax compliance in high-value rental transactions where tenants are not otherwise liable to tax audit. By placing the responsibility of TDS on the tenant, the law makes sure that landlords’ rental income is reported and taxed in time.
This section particularly benefits small taxpayers and individuals who may not be familiar with complex TDS rules. Let’s break down the key provisions, scope, rates, reporting process, and penalties under Section 194IB, along with the latest clarifications.
1. Key Features of Section 194IB
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Applicable to individuals and HUFs not liable for tax audit under Section 44AB.
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Deduction applies when monthly rent exceeds ₹50,000.
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TDS to be deposited within 30 days from the end of the month of deduction.
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Ensures transparent reporting of rental income to the Income Tax Department.
This way, even if the landlord is not a regular taxpayer, the TDS ensures that a part of their rental income is reported and collected upfront.
2. Who Must Deduct TDS?
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Applicable to individuals and HUFs who pay rent for residential or commercial property.
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Only tenants who are not subject to audit under the Income Tax Act need to deduct TDS under this section.
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Businesses and professionals already covered under other TDS provisions (like Section 194I) do not fall under this rule.
👉 The liability rests on the tenant, who must deduct and deposit the tax.
3. What Qualifies as ‘Rent’?
For Section 194IB, rent refers to payments made for:
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Use of land, building, or part of a building (residential or commercial).
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Payments under lease, sub-lease, tenancy, or any arrangement for using property.
It does not include:
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Payments for property purchase.
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Charges for maintenance, utilities, or services.
4. TDS Rate and Threshold (Including 2024 Budget Update)
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Rate: 5% of monthly rent.
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Threshold: Deduction applies only when rent is ₹50,000 or more per month.
💡 Example: If rent is ₹60,000 per month, the tenant deducts ₹3,000 as TDS and pays ₹57,000 to the landlord.
📌 The Union Budget 2024 did not change the rate or threshold. However, the government emphasized stricter monitoring to improve compliance.
5. Timing of Deduction and Deposit
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TDS must be deducted at the time of actual payment or credit of rent.
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The deducted tax must be deposited with the government within 30 days from the end of the month in which deduction is made.
For example, if rent is paid on April 10, the TDS must be deposited by May 30.
6. Filing and Reporting Requirements
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Deductor (tenant) must file Form 26QC online within 30 days of deduction.
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After depositing, the tenant must provide the landlord with Form 16C (TDS certificate) by the end of the financial year.
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These documents serve as proof that tax has been deducted and deposited properly.
7. Penalties for Non-Compliance
Failure to comply with Section 194IB attracts:
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Interest at 1% per month for late deduction and 1.5% for late deposit.
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Penalty under Section 271H for not filing Form 26QC or not issuing Form 16C.
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Continuous defaults may invite stricter scrutiny by the Income Tax Department.
8. Latest Clarifications and Updates
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Shared Rentals: If multiple tenants occupy the same property, each tenant deducts TDS only on the portion of rent paid by them.
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The Income Tax Department has highlighted that timely compliance is essential to avoid penalties.
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Increased data integration with PAN and Aadhaar ensures better monitoring of rental income.
9. Conclusion
Section 194IB plays a crucial role in bringing transparency to rental income taxation. While the law places the responsibility on tenants, the process is simple—deduct 5% TDS, deposit it online via Form 26QC, and provide the landlord with Form 16C.
By complying on time, tenants not only avoid penalties but also contribute to accurate reporting of rental income under Income Tax India regulations.
10. FAQs
Q1. Does Section 194IB apply if monthly rent is ₹45,000?
👉 No, TDS is applicable only if rent is ₹50,000 or more per month.
Q2. Is TDS under Section 194IB applicable to NRIs?
👉 No, this section applies only when rent is paid to a resident landlord. Payments to NRIs are covered under Section 195.
Q3. Can maintenance charges be included as rent?
👉 No, only payments specifically made for use of property are considered rent.
Q4. What happens if the tenant fails to issue Form 16C?
👉 A penalty under Section 271H may be imposed.
