According to tax department rules, Section 194-IB mandates that individuals and Hindu Undivided Families (HUFs) deduct TDS at 2% when monthly rent exceeds ₹50,000. This provision applies to any payment for use of land or building, regardless of whether the tenant is engaged in business or profession. As reported by the tax department, no Tax Deduction and Collection Account Number (TAN) is required for deducting tax under this section, allowing tenants to use their PAN in place of TAN.
When monthly rent exceeds ₹50,000, tenants must deduct 2% TDS from the rent before making payment to the landlord. According to the tax department, no surcharge or health and education cess is added to this rate. However, if the landlord does not provide a PAN, the TDS rate increases sharply to 20% under Section 206AA. The tax deducted cannot exceed the rent payable for the last month of the financial year or the final month of the tenancy.
After deducting TDS on rent, tenants must deposit the tax with the central government through Form 26QC within 30 days from the end of the month in which the deduction was made. As reported by the tax department, the challan-cum-statement must be filed electronically. The tenant must also issue a TDS certificate, Form 16C, to the landlord within 15 days of filing the TDS statement. This certificate serves as proof of TDS deduction and must be provided to the landlord.
Failure to deduct TDS results in interest of 1% per month until the tax is deducted. If TDS is deducted but not deposited with the government, interest of 1.5% per month is charged from the deduction date until payment is made. According to the tax department, a late fee of ₹200 per day under Section 234E applies if a tenant fails to file the TDS statement. Additionally, penalties ranging from ₹10,000 to ₹1 lakh may be imposed under Section 271H for non-compliance. A separate penalty of ₹500 per day applies if the tenant fails to issue the TDS certificate (Form 16C) to the landlord within the prescribed time.
