Section 194IB: TDS on Rent – Rules, Rates & Limits for FY 2025-26

Renting a premium house or office space often comes with a hidden responsibility: acting as a tax collector for the government. While many of us are used to seeing TDS (Tax Deducted at Source) on our salary slips, the law also requires certain tenants to deduct tax before paying rent to their landlords. This is where Section 194IB comes into play. Specifically designed for individuals and families who aren't business moguls but pay significant monthly rent, this section ensures that high-value rental income doesn't fly under the tax department's radar. Understanding these rules is essential for both tenants and landlords to avoid the headache of penalties and interest charges during the 2025-26 tax cycle.

What exactly is Section 194IB?

Section 194IB was introduced to bridge a gap in the tax system. For a long time, only businesses subject to Tax Audit had to deduct TDS on rent. This meant many high-salaried individuals paying lakhs in rent every month were not deducting any tax.

Under Section 194IB, if you are an Individual or a Hindu Undivided Family (HUF) and your monthly rent exceeds ₹50,000, you are responsible for deducting tax. The best part? Unlike business owners, you don’t need a Tax Deduction Account Number (TAN) to do this. Your regular Permanent Account Number (PAN) is enough to complete the entire process.

Key Rules for Financial Year 2025-26

The government has streamlined the rates and limits for the current cycle. If you are a tenant today, these are the three numbers you must memorize:

• The Threshold: Rent must be more than ₹50,000 per month (or part of a month).
• The Standard Rate: 2% of the total annual rent (Reduced from 5% effective October 1, 2024).
• The No PAN Rate: 20% if your landlord refuses to provide their PAN.

Who is a Deductor under 194IB?

You fall under this section if:

1. You are an individual or HUF.
2. You are NOT liable for a tax audit under Section 44AB (usually meaning your business turnover is below ₹1 Crore or professional receipts are below ₹50 Lakh).
3. You pay rent to a Resident Indian landlord.

Section 194I vs. Section 194IB: Which one applies to you?

It is easy to get these two confused. The primary difference lies in who is paying the rent and how much they are paying.

Feature

Section 194I (Business/Audit)

Section 194IB (Individuals/HUF)

Payer

Companies, Firms, or Audited Indiv/HUF

Individuals/HUF (Not under Audit)

Rent Threshold

Above ₹2.4 Lakh per year

Above ₹50,000 per month

TDS Rate

10% (Land/Building)

2% (Latest rate)

TAN Required?

Yes, mandatory

No, only PAN is needed

Form Used

Form 26Q (Quarterly)

Form 26QC (Once a year)

When and How to Deduct the Tax?

One of the biggest misconceptions is that you have to deduct 2% from the rent every single month. You don't. To keep things simple for regular people, the law says you only need to deduct the total annual TDS once a year.

The Timeline:

• If you stay all year: Deduct the tax from the rent of March.
• If you move out mid-year: Deduct the tax from the rent of your last month of tenancy.

Example: If your rent is ₹60,000 per month, your total annual rent is ₹7,20,000.

• TDS @ 2% = ₹14,400.
• In March, you will pay the landlord: ₹60,000 - ₹14,400 = ₹45,600.
• You will then pay the ₹14,400 to the government on behalf of the landlord.

The Filing Process: Form 26QC and Form 16C

Once you have deducted the money, you have 30 days to hand it over to the government.

1. Form 26QC (The Challan): This is a Challan-cum-Statement filed online through the Income Tax Portal. You enter the details of the tenant, landlord, and property. You must file this within 30 days from the end of the month in which the deduction was made.
2. Form 16C (The Certificate): After paying the tax, you must give your landlord a TDS certificate called Form 16C. This allows them to claim the tax credit in their own ITR. You should issue this within 15 days of filing Form 26QC.

What if the Landlord doesn't have a PAN?

If your landlord doesn't provide a PAN, the tax rate jumps from 2% to 20%. However, the law protects the tenant here the TDS amount cannot exceed the rent of the last month. This ensures you aren't paying more out of your own pocket than the actual rent you owe for that final month.

Penalties for Missing the Deadline

The tax department has become very efficient at tracking high-value rent through the Annual Information Statement (AIS). If you miss a deadline, the costs add up quickly:

• Late Deduction: 1% interest per month from the date the tax was supposed to be deducted.
• Late Payment: 1.5% interest per month from the date of deduction to the actual date of payment.
• Late Filing of Form 26QC: A penalty of ₹200 per day under Section 234E.

Conclusion

Section 194IB might seem like an extra chore, but it’s a vital part of staying compliant in 2025-26. By reducing the rate to 2%, the government has made it less of a burden on your monthly cash flow, but the responsibility to report it remains just as serious. As a tenant, always ensure you have your landlord's PAN at the start of the lease and set a reminder for March to handle the paperwork. For landlords, seeing that 2% deduction is actually a good sign means your tax records are being updated correctly, making your ITR filing much smoother at the end of the year.