Zeal Consultancy - Blog #TDS on RentZeal Consultancy - Blog #TDS on Renthttps://www.zealconsultancy.co.in/blogs/tag/tds-on-rentWed, 22 Apr 2026 17:46:48 +0530http://zoho.com/sites/<![CDATA[Understanding Section 194IB: TDS on Rent Payments Explained]]>https://www.zealconsultancy.co.in/blogs/post/understanding-section-194ib-tds-on-rent-payments-explainedIn the realm of income tax regulations, it's crucial for individuals and Hindu undivided families (HUFs) to grasp the nuances of Section 194IB. This s ]]>

In the realm of income tax regulations, it's crucial for individuals and Hindu undivided families (HUFs) to grasp the nuances of Section 194IB. This section of the Income Tax Act, 1961, pertains to the deduction of tax at source (TDS) on rent payments exceeding ₹50,000 per month. Let's delve into the details to understand who is liable, when to deduct TDS, the applicable rates, and recent amendments.

Who is Liable to Deduct Tax?

Section 194IB mandates that any individual or HUF, not covered under Section 194I, who pays rent exceeding ₹50,000 per month to a resident during a financial year, must deduct income tax at the prevailing rates. Moreover, individuals covered under sections 44AD and 44ADA, with turnovers not exceeding ₹3 crores and ₹50 lakhs for business and profession respectively, fall under this purview. The recent amendments have increased the turnover limits from ₹2 crores to ₹3 crores for businesses and from ₹75 lakhs to ₹50 lakhs for professions.

When to Deduct TDS?

TDS should be deducted at the time of crediting the rent for the last month of the previous year or the final month of tenancy, whichever occurs first. This deduction occurs either during the credit of rent to the payee's account or at the time of payment, through cash, cheque, draft, or any other mode.


TDS should be paid within 30 days from the end of the month in which TDS is deducted.

TDS Rate under Section 194IB

Under Section 194IB, tax must be deducted at a rate of 5% by the tenant, payer, or lessee at the time of rent payment to the lessor, landlord, or payee. The deducted tax amount must be deposited into the Government Account through authorized bank branches. 


Notably, obtaining a TAN No. (Tax Deduction and Collection Account Number) is not required for those deducting tax under this section. In cases where tax deduction is necessitated under sections 206AA or 206AB, the deduction amount cannot exceed the rent payable for the last month of the previous year or the last month of tenancy, as applicable.

Additional Considerations

- Form No. 26QC, a challan-cum-statement, needs to be submitted.

- The person deducting tax is mandated to issue a TDS certificate in Form 16C within the specified due dates.

- TDS under Section 194IB is only applicable for payments made to residents; payments to non-resident owners are exempt.

- Both resident and non-resident tenants are liable to deduct TDS under Section 194IB.

- Whether for residential or commercial purposes, rent payments exceeding ₹50,000 for any month within a year trigger TDS obligations.

Illustration 1

Mr. Mukesh, a salaried employee, pays rent of ₹62,000 per month to Mr. Ishaan during the financial year 2023-24. Is TDS deduction required?
- Yes, Mr. Mukesh is liable to deduct tax at source at a rate of 5% on such rent payments exceeding ₹50,000 per month. Thus, ₹37,200 (₹62,000 * 5% * 12 months) should be deducted from the rent payable for the entire financial year.

If Mr. Mukesh vacates the premises on November 30, 2023, he is still liable to deduct TDS for the months he occupied the property. 
- The tax for November 2023 would be ₹24,800 (₹62,000 * 5% * 8 months).

In the scenario where Mr. Mukesh vacates the premises on March 31, 2024, but Mr. Ishaan fails to provide his PAN.
- Then tax of ₹1,48,800 (₹62,000 * 20% * 12 months) or the rent of that month, ₹62,000, whichever is less, should be deducted from the rent payable for March 2024.

Illustration 2

Turnover of Mr. Dhoni in the financial year 2022-23 was ₹2.25 crores. 
In the financial year 2023-24, his turnover was ₹2.5 crores. He pays rent of ₹60,000 per month. Which section should TDS be deducted under (194I(b) or 194IB)?
(It's noteworthy that the limit for section 44AD and 44ADA has been increased from ₹2 crores to ₹3 crores for business and ₹75 lakhs to ₹50 lakhs for profession, respectively).

For the financial year 2022-23, TDS should be deducted under section 194I(b) as Mr. Dhoni's turnover in the preceding financial year exceeded ₹2 crore. This implies that TDS should be deducted at a rate of 10% if the rent paid during the year exceeds ₹2.40 lakhs. 

For the financial year 2023-24, TDS should be deducted under section 194IB as Mr. Dhoni's turnover in the preceding financial year was below ₹3 crore. Hence, TDS should be deducted at a rate of 5% on the rent payments exceeding ₹50,000 per month.

Conclusion

Understanding Section 194IB is essential for individuals and HUFs engaged in renting properties. Compliance with TDS regulations not only ensures adherence to legal requirements but also contributes to a transparent tax system. 


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