It has been reported recently that the Income Tax Department has sent notices to multiple salaried individuals who have claimed high House Rent Allowance (HRA) exemptions in the last three years without deducting TDS under Section 194IB.
One may ask why the tax department has sent notices to tenants and not the landlords. This article will help you understand.
Tax deduction at source (TDS) is required in case of rented properties when the total rent paid crosses a certain threshold. Moreover, TDS is always deducted by the one who gives the money, not the one who receives.
In case of rent, the tenant is the giver and the landlord is the receiver. Therefore, the responsibility of deducting the tax from rent and paying it to the Government lies with the tenant, not the landlord or the property owner.
That said, TDS on rent becomes applicable only after a certain threshold. It is important to know these thresholds above which TDS has to be deducted by the tenants.
There are multiple sections under the Income-tax Act, 1961 that cover rents of different kinds. Of these, Section 194IB is significant for salaried employees who are living in a rented property and claiming HRA from their employers.
TDS under Section 194IB
Section 194IB applies to any individual or HUF who is not liable to audit. Under this section, the tenant is required to deduct TDS if he is paying over ₹50,000/month or over ₹6,00,000 annually as rent to the landlord.
The rate of TDS under this section was 5% till September 2024 and 2% from October 1, 2024.
So, if you are a salaried person paying a rent of over ₹50,000 every month, you should deduct TDS at the applicable rate and deposit with the Income-tax Department.
TDS under Section 194I
Section 194I applies to persons (other than individuals or HUFs who are not subject to audit) making rental payments above the specified threshold. Companies, firms, trusts or association of persons etc, have to deduct TDS under this section. It will also apply to individuals or HUFs who are subject to audit.
The rent under the section includes rent for house, land, machines, buildings (including factory building), office, furniture, equipment, fittings etc. The rate of TDS under this section is 2% of rent on plant and machinery and 10% of rent on land, building, or furniture.
Till FY 2024-25, TDS deduction under this section was mandatory on annual rent above ₹2.4 lakh. From FY 2025-26, this threshold has been increased. Now, TDS will be mandatory under Section 194I if the annual rent is above ₹6 lakh (or ₹50,000 per month).