Section194-IB of Income Tax Act

Section 194-IB requires small taxpayers to deduct income tax at source when paying high-value rent in India. The section requires individuals and HUF (Hindu Undivided Family), who are not liable for tax audits under Section 44AB, to deduct TDS (tax deducted at source) before paying rent of over ₹50,000 per month to a resident.

The Section 194-IB TDS rate is currently 2% on the house rent amount exceeding ₹50,000 per month or on the part of the month when rent is due. Any tenant, including salaried individuals, is required to deduct TDS at the applicable rates for the use of land, a building, or both. Failure to deduct and pay the TDS amount leads to penalties and interest charges.

Also Read: Section 194D of Income Tax Act

Deductor Under Section 194-IB

Any individual or HUF paying rent of over ₹50,000 per month is required to deduct TDS at applicable rates. Even individuals who are not taxpayers or have income from a business or a profession are required to deduct TDS on rent under Section 194-IB.

Unlike sections where the deductor must have TAN, there is no such requirement u/s 194-IB, and the deductor can use their PAN. Only individuals or HUFs whose turnover or gross receipts are over ₹1 crore from a business or ₹50 lakhs from a profession are not required to deduct TDS on rent u/s 194-IB, because they are covered under Section 194I.

Deductee Under Section 194-IB

Tax is to be deducted at source when paying rent to an Indian resident. TDS requirements for rent payments to non-residents are covered under Section 195 of the Income Tax Act.

Tax is to be deducted and paid to the government within the following timelines u/s 194-IB of the Income Tax Act:

Timeline for Deducting TDS

• If your tenancy lasts till the end of the financial year, you need to deduct TDS at the time of credit or payment of rent to the payee account for the last month of the year, whichever happens first.
• If you vacate the property in the middle of the year, you need to deduct TDS at the time of rent credit or payment for the last month of tenancy, whichever is earlier.
• You can make the TDS payment via cash, draft, cheque or other modes.

Timeline for Depositing TDS

• For non-government deductors, TDS must be paid on or before 7 days from the end of the month when the deduction was made. Thus, if TDS is deducted in May, it must be paid by June 7th.
• For TDS deducted in March, payment should be made by April 30th in the case of non-government (individual, HUF, business) deductors.
• Where rent payment is made by or on behalf of a government office, the payment must be made on the same day as the TDS deduction.
• The time limit for paying TDS via challan cum statement (Form 26QC) is 30 days from the end of the month when TDS was deducted.

The current rate of TDS on rent payment u/s 194-IB is 2% for tenants who are individuals and HUFs not liable to tax audit. This rate is applicable if the rent is over ₹50,000 per month or part of a month during the financial year if the landlord’s PAN is available.

If the landlord does not furnish their PAN to the deductor, the rate of TDS is 20% as per the provisions of Section 206AA. However, the TDS deduction amount cannot exceed the rent payable for the last month of the year or tenancy, as applicable.

Also Read: Section 206AA of Income Tax Act

Now, let us consider examples to understand the process of deducting 194-IB TDS:

Scenario I: The tenant occupies the property for an entire year

Ms Sunita rents a property from April 1st, 2025, to March 31st, 2026, to Mr Deepak for a rent of ₹60,000 a month. Since Mr Deepak pays the rental income to Ms Sunita, he is liable to deduct the TDS. He must deduct the tax at the end of the year from the credit of the rental income.

Total rent for the year = ₹60,000*12 months = ₹7,20,000

TDS= ₹7,20,000*2% = ₹14,400

Scenario II: The tenant vacates the property during the year

Now, let us assume Ms Sunita rents the property from October 1st, 2025, to March 31st, 2026, to Mr Deepak for a rent of ₹65,000 a month. Since Mr Deepak pays the rental income to Ms Sunita, he is liable to deduct the TDS. He must deduct the tax during the last month of his tenancy at the time of credit of the rental income.

Total rent for the year= ₹65,000*6 months= ₹3,90,000

TDS = ₹3,90,000*2%= ₹7800

Here is a list of penalties applicable for failure to deduct and deposit TDS and furnish statements u/s 194-IB:

• Penalty for Not Deducting: Any person who fails to deduct TDS u/s 194-IB will be treated as an assessee in default. For this, interest at 1% per month or part of the month will be charged on the deduction amount till the date when the tax is actually deducted.
• Penalty for Not Depositing: If the deductor fails to credit the TDS amount to the Central Government, interest at 1.5% per month or part of the month will be charged. The interest will accrue till tax is deposited with the government.
• Penalty for Not Furnishing TDS Statement: The penalty is a fee of ₹200/day up to the TDS amount till the end of the default.
• Penalty for Not Furnishing TDS Certificate: For not issuing the TDS certificate (Form 16) within the specified deadline, a penalty fee of ₹500/day is charged till the default ends.

After you have deducted tax at source u/s 194-IB, follow the given steps to make payment within the given deadline:

Step 1: Visit the official tax e-filing portal of the Income Tax Department.

Step 2: Log in using your PAN and password and go to e-File > e-Pay Tax and click on ‘File Now’.

Step 3: Select ‘26QC (TDS on Rent of Property) and click on ‘Proceed’.

Step 4: Enter the required details, including the landlord’s PAN and address, rent amount, period of tenancy and TDS details.

Step 5: Pay the TDS that you have deducted and save the acknowledgement number and download Form 26QC for future reference. You also need to download and print the relevant Form 16 from the TRACES portal and provide a copy to the landlord.

Section 194-IB requires small taxpayers to deduct and pay TDS on rent payments above ₹50,000 per month, ensuring tax compliance for landlords across the country. The tenant is required to deposit the deducted amount within 30 days from the deduction date. For this, Form 26QC must be submitted. Also, a TDS certificate in Form 16C must be provided to the property owner or the payee.

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