Renting a house is an integral part of life for employed people in big cities and metros. But if you live in a premium area and your monthly rent crosses the Rs 50,000 mark, then it is extremely important for you to be aware of a very sensitive rule of the Income Tax Department. Due to lack of information, a small mistake on your part can not only get you an income tax notice but can also land you in the financial trap of a huge fine of up to Rs 1 lakh. This rule is directly linked to your bank account and your tax profile.
Your responsibility for TDS
Section 194-IB of the Income Tax Act, 1961 clarifies that if an individual or Hindu Undivided Family (HUF) pays rent of more than Rs 50,000 every month, the entire legal responsibility of deducting Tax Deducted at Source (TDS) rests on the shoulders of the tenant. This simply means that before making full payment of rent to your landlord, you will have to deduct TDS at the fixed rate and deposit this deducted amount in the government account.
big screw of pan card
Giving some relief to the tenants in the Union Budget 2024, the government has changed the TDS rates. From October 1, 2024, the TDS rate under Section 194-IB has been reduced from 5 percent to 2 percent. However, there is also a very strict condition here. It is mandatory for the landlord to have PAN card. If your landlord is reluctant to provide his PAN card details or does not have a PAN, then this TDS rate will directly reduce to 20 percent. The only saving grace in this is that the total TDS deducted cannot exceed the last month’s rent of the financial year or the house.
carelessness will cost you dearly
Ignoring this rule can prove to be very harmful financially. If you forget to deduct TDS, you will have to pay interest at the rate of 1 percent per month. However, if TDS is not deposited with the government after deducting it, the interest rate increases to 1.5 percent. The difficulties do not end here; For not filing TDS return on time, a late fee of Rs 200 per day will be imposed and a penalty of up to Rs 1 lakh can also be imposed under section 271H. Additionally, the Income Tax Department may declare you as ‘Assessee in Default’ and the entire tax that has not been deducted will be recovered directly from the tenant (i.e. you).
When to deposit money?
According to Gopal Bohra, tax partner, NA Shah Associates, the best time to deduct TDS is the last month of the financial year (usually March), or the month when you are vacating the house. Whenever this tax is deducted, it is mandatory to deposit it in the government account within 30 days of the end of the month. That is, if you have deducted TDS in March 2026, then it will have to be deposited by 30 April 2026.
The Income Tax Department had a clear intention behind implementing this strict provision in 2017. The department had found that many taxpayers were claiming huge House Rent Allowance (HRA) from their offices, but their landlords were not showing this rent as a part of their income. To prevent this tax evasion and mismatch, the government directly handed over the responsibility of deducting TDS to the tenants.