Paying High Rent? Missing This One-Step TDS Rule Could Cost You Rs 1 Lakh

When Abhishek, a salaried employee, received a notice from the income tax department, it was not about any underreported income or a mismatch in his Form 16/AIS sheet. It was a penalty of Rs 1 lakh for simply not deducting TDS on rent.

Abhishek had been paying Rs 55,000 a month as rent, unaware of TDS deduction on such payment he ended up facing a hefty penalty. Under Section 194-IB of the Income Tax Act, which triggers a tax obligation many individuals are still unaware of: TDS has to be deducted if your rent exceeds Rs 50,000 a month.

“I had no idea” is the most common reaction when people learn this rule. But ignorance will not shield you from penalties. In Abhishek’s case, not only did he fail to deduct the required 2 per cent TDS (amounting to around Rs 13,200 annually), he also did not file the related TDS return (Form 26QC) or issue Form 16C to his landlord. The oversight eventually snowballed into a hefty penalty notice, plus interest and late fees.

What does the tax law under Section 194-IB say?

Introduced to plug gaps in rent-related tax disclosures, Section 194-IB applies to individuals (not just companies or firms) who pay rent over Rs 50,000 a month. The law requires such tenants to:

• Deduct 2 per cent TDS on the total rent paid for the year

• Deposit the TDS amount with the government

• File Form 26QC (a challan-cum-statement)

• Provide Form 16C (TDS certificate) to the landlord

This deduction needs to be made once, at the end of the financial year or tenancy, whichever comes earlier. It is a one-time step, but missing it can lead to multiple penalties.

So, what happens if you miss it?

There are some key interests and penalties applicable if somebody misses out on TDS on rent, such as:

• Rs 200 late fee per day until the TDS return is filed

• 1 per cent interest per month for not deducting, 1.5 per cent for not depositing

• Rs 10,000 to Rs 1 lakh penalty under Section 271H

• And in some rare cases, prosecution with up to 7 years of imprisonment

In another similar case shared by TaxBuddy on the social media platform X, Rohan, a salaried individual, failed to deduct TDS on his Rs 60,000 monthly rent for two straight financial years. By the time he realised and paid the due amount in 2025, he had to shell out Rs 37,000 more as interest and late fees, more than the original TDS he was supposed to deduct.

Who should worry about this tax?

If you are a salaried employee, live on rent, and your rent crosses the Rs 50,000 mark, even if only for a single month, you fall in the bracket of this tax. Moreover, this applies even if you don’t run a business or file TDS regularly.

Many tenants believe TDS is only a corporate obligation. However, the law does not exclude individuals from high-rent homes either. It is one of those personal compliance requirements that can quietly sit in the background until it explodes into a financial penalty.

What do taxpayers need to do?

For those who live on rent, here are four things that you must do to avoid a penalty:

1. Begin by checking your rent agreement. If your rent is above Rs 50,000, you should note the total amount for the financial year.

2. Calculate and deduct 2 per cent TDS before paying the last rent of the year or before vacating

3. File Form 26QC online within 30 days of deduction. This is to pay the said TDS to the government.

4. Issue Form 16C and give this TDS certificate to your landlord.

The Bottom Line

The rent you pay might not seem like a taxable transaction, but it can quietly carry a tax responsibility. As seen in Abhishek and Rohan’s case, overlooking a small compliance step can invite a heavy penalty.

TDS is no longer just the concern of accountants or business owners. If you live in a high-rent house or plan to make any large personal payments, you are in the loop now. Best to stay ahead of the curve and the notices.