TDS on Rent Under Section 194-IB: The 2% Rule Most Tenants Miss
If you are an individual paying more than Rs 50,000 a month in rent, the law says you are a tax deductor. Not your landlord, not your employer, not your CA — you. Section 194-IB of the Income-tax Act puts the obligation on the tenant, and the overwhelming majority of tenants it applies to have never heard of it.
The good news is that the rate came down. It was 5%. Since 1 October 2024 it is 2%. On a Rs 75,000 rent that is Rs 18,000 a year instead of Rs 45,000, deducted once, from one month's payment. The bad news is that the penalties for skipping it are still built for the old rate.
Key takeaways
- The rate is 2%, down from 5%, with effect from 1 October 2024. Which rate applies depends on when you deduct for the last month, not on when the rent accrued.
- The trigger is rent above Rs 50,000 for a month or part of a month, paid by an individual or HUF not subject to tax audit, to a resident landlord.
- You deduct once — from the rent for the last month of the financial year, or the last month of the tenancy if you leave earlier.
- No TAN needed. You file Form 26QC on your PAN within 30 days of the month-end, and issue Form 16C to the landlord within 15 days after that.
- An NRI landlord changes everything. Section 195 applies instead, at 31.2% before surcharge, with no Rs 50,000 threshold and a TAN requirement.
Who this actually applies to
Section 194-IB catches an individual or a Hindu Undivided Family who is not liable to a tax audit under Section 44AB. That is most salaried tenants and most small professionals. If you are a company, a firm, or an individual whose business turnover puts you into audit, you fall under Section 194-I instead, which is a heavier regime.
Three conditions have to hold together: you are the individual or HUF described above, the monthly rent exceeds Rs 50,000 for a month or part of a month, and the landlord is a resident of India. Rent here covers a house, a flat, a shop, land or furniture and fittings let with the premises.
Rent at exactly Rs 50,000 does not trigger it. Rent at Rs 50,100 does — and once triggered, the deduction is computed on the entire rent for the year, not on the excess above the threshold.
The rate, and the date it changed
| Deduction for the last month falls | Rate under Section 194-IB |
|---|---|
| Up to 30 September 2024 | 5% |
| On or after 1 October 2024 | 2% |
| Landlord has not given PAN, any date | 20% (Section 206AA), capped at the last month's rent |
The change came through the Finance (No. 2) Act, 2024. The point that trips people up is the transition rule: because the deduction happens once, at the end of the year or the tenancy, the rate is decided by the date of that single credit or payment. There is no splitting the year into a 5% half and a 2% half. A tenancy that ran through September 2024 but was deducted in March 2025 attracts 2% on the whole year.
When you deduct, and how much
You deduct at the time of credit or payment of rent for the last month of the financial year, or the last month of the tenancy, whichever comes first. Not monthly. Not quarterly. Once.
There is also a cap that matters at the 20% no-PAN rate: the tax deducted cannot exceed the rent payable for that last month. So the deduction comes out of one month's cheque and cannot swallow more than that cheque.
Worked example: a full year at Rs 75,000
- Rent Rs 75,000 a month, April 2026 to March 2027, resident landlord with PAN on file.
- Annual rent Rs 9,00,000. TDS at 2% = Rs 18,000.
- In March 2027 you pay the landlord Rs 57,000 and deposit Rs 18,000.
- Form 26QC due by 30 April 2027. Form 16C to the landlord by around 15 May 2027.
Worked example: the landlord who will not share a PAN
- Rent Rs 3,00,000 a month for the year, no PAN provided. Annual rent Rs 36,00,000.
- Section 206AA rate 20% = Rs 7,20,000, but the cap limits the deduction to one month's rent, Rs 3,00,000.
- You still owe the shortfall exposure. Get the PAN. It is written into every standard lease for exactly this reason — see our note on rent receipts and the landlord PAN rule.
Form 26QC and Form 16C, step by step
- Deduct the tax from the last month's rent.
- File Form 26QC — a combined challan-cum-statement — within 30 days from the end of the month in which you deducted. Deduct in March, file by 30 April.
- Pay online at the same time. No TAN is required; you file on your PAN and the landlord's PAN.
- Download Form 16C from TRACES and hand it to the landlord within 15 days of the 26QC due date.
If a flat has two co-owners, each landlord-tenant pair needs its own 26QC. Two owners and one tenant means two forms. Two tenants and one owner also means two forms, one per tenant on their share.
What it costs to skip it
| Default | Consequence |
|---|---|
| Failed to deduct at all | Interest at 1% per month under Section 201(1A), from the date deduction was due |
| Deducted but not deposited | Interest at 1.5% per month until deposited |
| Form 26QC filed late | Late fee Rs 200 per day under Section 234E, capped at the TDS amount |
| Form 26QC not filed at all | Penalty under Section 271H, Rs 10,000 to Rs 1,00,000 |
| Form 16C issued late | Rs 100 per day under Section 272A(2)(g); some advisers quote Rs 200 and Rs 500 a day, so treat the exposure as at least Rs 100 a day |
The most common real-world outcome is not a raid. It is a notice two years later when the landlord's return and the department's data do not reconcile, at which point the interest has been running the whole time.
194-IB against 194-I: the two are not interchangeable
| Section 194-IB | Section 194-I | |
|---|---|---|
| Who deducts | Individual or HUF not under tax audit | Companies, firms, and individuals or HUFs liable to audit |
| Threshold | Rent above Rs 50,000 for a month or part of a month | Rs 6,00,000 a year from 1 April 2025 (up from Rs 2,40,000) |
| Rate | 2% from 1 October 2024 | 10% on land, building and furniture; 2% on plant and machinery |
| TAN required | No | Yes |
| Deduction frequency | Once a year or at end of tenancy | Every month, at credit or payment |
| Forms | 26QC, then 16C | Quarterly 26Q, then 16A |
One honest caveat on the 194-I threshold. The Finance Bill 2025 was drafted as Rs 50,000 for a month or part of a month; the change is most commonly reported as Rs 6,00,000 per financial year. Both descriptions are in circulation and they produce the same answer for a steady rent of Rs 50,000 a month. If your rent is lumpy across the year, take advice rather than a blog. The wider set of 2026 changes is covered in our note on the new tax rules for real estate.
If your landlord is an NRI
Section 194-IB does not apply to a non-resident landlord at all. Section 195 does, and it is a much heavier obligation:
- No threshold. Even Rs 20,000 a month attracts deduction.
- Rate 31.2% — 30% plus the 4% health and education cess — and higher once surcharge applies on large payments, unless a DTAA or a lower-deduction certificate under Section 197 reduces it.
- Every month, not once a year.
- You need a TAN, file Form 27Q quarterly and issue Form 16A.
Tenants regularly discover this after signing, because the landlord's address on the lease is Indian and nobody asked about residential status. Ask directly, in writing, before the first payment, and put the answer in the agreement — a registered lease is the cleanest place for it, as our comparison of registered against notarised rent agreements explains.
FAQ
What is the current TDS rate on rent under Section 194-IB?
2%, with effect from 1 October 2024. It was 5% before that. The applicable rate is fixed by the date on which you make the single deduction for the last month of the year or the tenancy.
Do I need a TAN to deduct TDS on rent as a tenant?
No. Under Section 194-IB you use your PAN and the landlord's PAN on Form 26QC. A TAN is only required if you fall under Section 194-I, or if your landlord is a non-resident and Section 195 applies.
My rent is Rs 55,000 but I only stayed seven months. Do I still deduct?
Yes. The threshold is monthly, not annual. You deduct 2% of the total rent paid for those seven months, from the last month's rent, and file Form 26QC within 30 days of that month-end.
Can I claim HRA if I have not deducted this TDS?
HRA and TDS are separate obligations, so the exemption is not automatically lost. But an HRA claim above Rs 1 lakh a year requires the landlord's PAN, which is the same PAN the department will use to notice that no 26QC was filed against a large rent.
What if the landlord refuses to accept a reduced payment?
The deduction is a statutory obligation, not a negotiation. Show the landlord Form 16C, which is a credit they claim against their own tax. If the lease says rent is payable "net of taxes", raise it before you sign, not in March.
A five-minute job, once a year
Set a calendar reminder for the last month of your financial year, keep the landlord's PAN on file from day one, and the whole obligation takes one online form. Registration and deposit rules changed for tenants recently too, and they are worth reading alongside this — see our note on India's new rent rules. Any doubt about which section applies to your lease, send us the agreement and we will point you to the right one.
