Imagine this. You’ve been paying a monthly rent of Rs 60,000 all year, transferring the amount on time, keeping things simple. But as the financial year comes to a close, there’s one small detail many tenants overlook, and it could bring an unexpected tax notice later.
If your rent crosses Rs 50,000 a month, income tax rules require you to deduct TDS before making the final payment of the financial year. Missing this step can lead to penalties, interest, and unwanted scrutiny from the tax department.
Under current income tax provisions, individuals and Hindu Undivided Families (HUFs) who are not subject to tax audit must deduct 2% TDS on rent if it exceeds Rs 50,000 per month.
This rule is designed to keep track of high-value rental transactions and ensure that landlords report this income properly in their tax filings.
Gaurav Makhijani, Tax Head at Makhijani Gera and Associates, explains, “Individuals and HUFs who are not subject to tax audit must be mindful of their TDS obligations on rent payments. Where monthly rent exceeds Rs. 50,000, a 2% tax is required to be deducted at source.”
The timing is where many tenants get confused. Unlike regular TDS deductions, this is usually done once, i.e., at the end of the financial year.
“The deduction is generally made at the time of payment or credit for the last month of the financial year,” Makhijani says. However, there’s an exception. “If the tenant vacates the property during the year, the deduction must be made at the time of payment for the last month of tenancy.”
Once deducted, the TDS must be deposited within 30 days from the end of the month in which it is deducted.
While the rule may sound technical, the process itself is fairly simple and online.
The payment is made through Form 26QC on the income tax e-filing portal, and tenants are not required to obtain a TAN. The system is PAN-based and can be completed via the e-Pay Tax facility.
Makhijani says, “The tax so deducted is required to be deposited within 30 days. Additionally, the tenant must issue a TDS certificate in Form 16C to the landlord, ensuring proper compliance with withholding tax provisions.”
To complete the payment, tenants need to log in to the income tax e-filing portal, go to the e-Pay Tax section, and select “New Payment” followed by “26QC – TDS on Rent of Property”. They must then fill in details of both tenant and landlord, including PAN and address, along with tenancy details such as rent amount, duration and property information.
After calculating TDS at 2%, the details can be reviewed before proceeding to payment using net banking, debit card or other available modes. Once the payment is completed, the challan or receipt should be downloaded for record.
For many tenants, this rule often slips through the cracks because it applies only once a year. But ignoring it can prove costly. The tax department keeps a close watch on high-value rent payments, and non-compliance can trigger notices or penalties.
As the financial year ends, it’s worth double-checking whether your rent crosses the Rs 50,000 mark, and if it does, ensuring that the TDS requirement is taken care of properly.