Paying ₹55,000 Rent On Time? You May Still Face ₹1 Lakh TDS Penalty—Here’s Why

Introduction: The Hidden Penalty Behind Timely Rent Payments

Paying your rent on time might make you feel like a responsible tenant—but what if that very act lands you with a ₹1 lakh penalty notice from the Income Tax Department? That’s exactly what happened to Abhishek, a salaried professional who was paying ₹55,000 as monthly rent without any defaults. His mistake? He didn’t deduct TDS or submit the required forms.

This blog unpacks the lesser-known TDS rules under Section 194-IB of the Income Tax Act, and explains why missing this obligation—even unintentionally—can be costly.

Who Must Deduct TDS on House Rent?

As per Section 194-IB of the Income Tax Act, 1961, any individual or Hindu Undivided Family (HUF), not subject to a tax audit, must deduct 2% TDS if the monthly rent exceeds ₹50,000.

Key points:

• Applicable to salaried employees and non-auditable individuals.

• TDS is to be deducted even if the landlord is a relative.

• Applies only to rent paid to resident landlords. For non-residents, Section 195 applies (more on that later).

Real-Life Case: Why Abhishek Got Penalized

Let’s take a closer look at Abhishek’s case:

• Monthly Rent: ₹55,000

• Total Annual Rent: ₹6.6 lakh

• TDS Not Deducted: ₹13,200 (2%)

• Forms Not Filed: Form 26QC (challan) and Form 16C (certificate to landlord)

As a result, the Income Tax Department invoked Section 271H and levied a discretionary penalty of ₹1,00,000. He also incurred interest and late filing fees.

What Are the Tenant's Responsibilities Under Section 194-IB?

Here’s what a tenant paying over ₹50,000 rent/month must do:

1. Deduct 2% TDS before paying rent (if rent is paid after Oct 1, 2024).

2. Fill and submit Form 26QC (TDS challan-cum-statement) online.

3. Download and issue Form 16C to the landlord.

No need for a TAN (Tax Deduction and Collection Account Number)—just a PAN suffices.

When Should TDS Be Deducted?

TDS on rent must be deducted at the earlier of the following events:

• When rent is credited to the landlord’s account,

• When rent is paid via cash, cheque, bank transfer, etc.,

• Or at the end of the financial year,

• Or when the tenant vacates the property.

Example 1:
If rent agreement runs from June 2024 to May 2025 and the tenant vacates in March 2025, TDS is to be deducted before making the last rent payment in March.

Example 2:
If tenant leaves in December 2024, then TDS must be deducted on the total rent paid until December before vacating.

Old vs. New TDS Rates on Rent

The revised lower TDS rate of 2% makes compliance less financially burdensome—but skipping it still invites harsh penalties.

Form 26QC and Form 16C: What Are They?

• Form 26QC: A challan-cum-statement filed online for TDS on rent under Section 194-IB.

• Form 16C: A TDS certificate issued by the tenant to the landlord after filing Form 26QC.

Both are mandatory—even if TDS is paid correctly.

Consequences of Non-Compliance

Missing TDS obligations has multi-layered consequences. Here’s a breakdown:

1. Interest Under Section 201(1A)

• 1% per month: If TDS not deducted.

• 1.5% per month: If deducted but not deposited.

2. Late Filing Fee Under Section 234E

• ₹200 per day from the due date of filing Form 26QC till the actual filing.

• Subject to a cap: not exceeding the TDS amount.

3. Penalty Under Section 271H

• Discretionary: ₹10,000 to ₹1,00,000 for failure to file Form 26QC.

4. Prosecution Under Section 276B (Rare)

• Applicable only in cases of willful default.

• Punishable with 3 months to 7 years imprisonment and a fine.

• Generally invoked if TDS default is over ₹25 lakh and delay is more than 60 days.

Sample Computation: What You May Owe

Let’s say you paid ₹55,000 rent/month from April 2022 to March 2024 and missed TDS completely.

Total Liability: ₹3 lakh+ (even though your rent was paid on time)

If TDS Was Deducted But Not Deposited: Interest @1.5%

Suppose TDS was deducted but deposited 13–25 months late.

Even if you were compliant halfway, late deposits attract serious penalties.

What If You Share Rent With Someone Else?

Let’s say the total rent is ₹60,000/month and shared by two tenants:

TDS Not Applicable If:

• Each tenant pays ₹30,000 directly from their bank account.

• Clear rental split is documented.

• Either via two agreements or one agreement mentioning individual shares.

TDS Applicable If:

• One tenant pays ₹60,000 in full and is later reimbursed.

• Rental agreement is only in one name.

• The tax department treats the entire rent as paid by one person.

In such cases, TDS must be deducted on the entire ₹60,000.

How to File Form 26QC (Step-by-Step)

1. Visit: https://www.tin-nsdl.com

2. Go to Services → e-TDS → e-Payment of Taxes → TDS on Rent of Property (Form 26QC).

3. Fill in:

   • PAN of tenant and landlord

   • Rent amount

   • Period of tenancy

   • Property details

4. Submit and make payment online.

5. Save the acknowledgment.

6. Wait 3–7 days, then download Form 16C from TRACES portal.

Avoiding Penalties: Expert Tips

1. Deduct TDS before paying the last month's rent.

2. File Form 26QC within 30 days of TDS deduction.

3. Issue Form 16C promptly to the landlord.

4. Use separate bank transfers if sharing rent.

5. Track notices from IT department (email/SMS/portal).

Conclusion: Stay Compliant, Stay Stress-Free

Abhishek’s case is a cautionary tale. Despite being punctual with rent payments, he faced a ₹1 lakh penalty due to ignorance of TDS rules. As rental thresholds continue to rise in urban India, more and more tenants cross the ₹50,000 mark—often unknowingly falling into this tax trap.

Understanding your obligations under Section 194-IB, filing Form 26QC on time, and issuing Form 16C can save you from financial distress and legal trouble. If you’re unsure, consult a tax expert or use platforms like LegalKart to avoid surprises from the Income Tax Department.