Individuals paying monthly rent above ₹50,000 are required to deduct TDS at 2% before making payment to their landlord. According to reports from Mint, this obligation is established under Section 194-IB of the Income Tax Act, 1961, which applies to individuals and Hindu Undivided Families (HUFs) who are not required to get their accounts audited under Section 44AB. The provision covers rent paid for land, buildings, factory premises, and other specified assets under lease or tenancy arrangements.
The TDS deduction must be made when the tenant stays in the rented property until the end of the financial year, or when vacating during the year. As reported by Mint, if staying until the end of the financial year, deduction should occur while paying rent for the last month. For tenants vacating during the year, deduction should be made while paying rent for the last month of their tenancy. The reduced 2% rate has been in effect since October 1, 2024, down from the previous 5% rate.
The landlord's PAN plays a crucial role in determining the applicable TDS rate. According to Mint, if the landlord does not provide a valid PAN, the tenant may have to deduct tax at 20% under Section 206AA. However, the TDS amount cannot exceed the rent payable for the last month of tenancy or financial year. The deducted tax must be deposited using Form 26QC within 30 days from the end of the month in which deduction is made. After depositing, the tenant must issue Form 16C to the landlord within 15 days from the due date of filing Form 26QC.
Failure to deduct TDS results in interest charges at 1% per month from the date tax should have been deducted until actual deduction. As reported by Mint, where tax has been deducted but not deposited with the government, interest increases to 1.5% per month. Delays in filing Form 26QC attract a late fee of ₹200 per day, but cannot exceed the applicable TDS amount. Most significantly, failure to issue TDS certificate (Form 16C) to the landlord results in a penalty of ₹500 per day for each day of delay.
While Section 194-IB covers rental payments, Section 194-IC addresses payments under Joint Development Agreements (JDAs). According to Mint, any payment made to a resident under such agreements is subject to 10% TDS. The tax must be deducted at the earlier of the date of credit to the payee's account or the date of actual payment, regardless of payment mode. Tenants are not required to obtain a TAN under Section 194-IB, as their PAN is sufficient for completing the process.
