Many tenants who pay monthly rent over Rs 50,000 don’t realise that they may have TDS (Tax Deducted at Source) obligations as well. Under the income tax law, such tenants are required to deduct tax on rent payments, deposit it with the government and complete certain compliance formalities. Missing these requirements can lead to interest, late fees and penalties.
Here’s what tenants need to know.
TDS on rent: When must tenants deduct tax under Section 194-IB?
Under Section 393 of the Income Tax Act, 2025 (earlier Section 194-IB of the Income Tax Act, 1961), tenants who are individuals and/or Hindu Undivided Families (HUFs) and who are not required to undergo a tax audit must deduct TDS from rent paid to a resident landlord if the monthly rent is more than Rs 50,000.
Experts say tenants do not require a TAN for this. “It dispenses with the requirement of obtaining a TAN (Tax Deduction and Collection Account Number),” says Raghav Bajaj, Partner at Khaitan & Co.
One important point that tenants often overlook is that once the Rs 50,000 monthly threshold is crossed, TDS applies to the entire rent amount and not just the portion in excess of Rs 50,000.
What is the TDS rate applicable on rent?
The applicable TDS rate is currently 2% of the rent amount payable to a resident landlord. The deduction is made on the gross rent for the relevant period.
The reduced rate of 2% applies from 1 October 2024. Before this amendment, the applicable rate was 5%, explains CA Chintan Ghelani, Partner, Direct Tax, N. A. Shah Associates LLP.
Unlike many other TDS provisions, tenants are not required to deduct tax every month.
“The tax must be deducted in the last month of the financial year or in the last month of the tenancy, whichever is earlier,” says Ghelani.
For instance, if a tenant pays rent of Rs 70,000 per month from April 2025 to March 2026, the total rent for the year would be Rs 8.40 lakh. The tenant would be required to deduct TDS of Rs 16,800 (2% of Rs 8.40 lakh) in March 2026 and deposit it through Form 26QC by 30 April 2026, he explains.
How should tenants deposit TDS?
After deducting TDS, the next step is to deposit it with the government through Form 26QC (challan-cum-statement).
A major relief for tenants is that they do not need to obtain a Tax Deduction Account Number (TAN), unlike businesses that regularly deduct TDS.
“TAN is not required for this compliance; it is a PAN-based compliance. After deduction, the tax must be deposited with the central government within 30 days from the end of the month in which deduction is made.,” Rahul Charkha, Partner, Economic Laws Practice.
For deduction up to 31 March 2026, compliance is through Form 26QC, followed by issuance of Form 16C. For deduction on or after 1 April 2026, the challan-cum-statement is Form 141 and the corresponding certificate is Form 132, he adds.
What is Form 16C? Why must tenants issue this TDS certificate to landlords
Filing Form 26QC is not the final step. After depositing TDS, tenants must also provide Form 16C to the landlord. This document serves as proof that tax has been deducted and deposited with the government.
“Form 16C is the TDS certificate issued by a tenant to the landlord for TDS deducted under Section 194-IB,” says CA Abhishek Soni, CEO & Co-founder, Tax2win.
After filing Form 26QC, the tenant can download Form 16C from the TRACES portal. The tenant must issue Form 16C to the landlord within 15 days from the due date of filing Form 26QC, he adds.
Form 16C is an important document for both landlords and tenants.
For landlords, it serves as proof that TDS has been deducted from the rent and deposited with the government. It also enables them to claim TDS credit while filing their Income Tax Return (ITR) and helps reconcile the TDS reflected in Form 26AS and the Annual Information Statement (AIS).
For tenants, Form 16C acts as evidence of compliance with TDS provisions and can help prevent disputes related to the deduction and deposit of tax.
Should tenants deduct and deposit TDS on rent in March?
Where the tenancy continues throughout the financial year, the month of March (being the last month of the tax year) is the default trigger for deducting TDS on rental payments.
“The tenant should compute TDS at 2% on the rent amount covered by the provision, deduct it at the time of credit or payment for March, whichever is earlier, and deposit it by 30 April. No interest, late fee or penalty arises merely because deduction is made in March, if March is the correct statutory month and the deposit, statement and certificate are completed within time,” says Charkha.
Delays in deduction, deposit, or filing can result in interest and late fees.
“Failure to deduct or deposit the TDS within the prescribed timelines would result in the tenant being treated as an assessee in default, who shall then be liable to pay interest at the rate of 1% per month (for non-deduction) or 1.5% per month (for non-payment after deduction), as applicable,” says Bajaj.
Further, late fee of Rs 200 per day shall be levied for the period of default, capped till the amount of TDS ought to be deducted, he adds.
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