If you’re a salaried tenant paying more than ₹50,000 a month in rent, there’s a little-known tax compliance rule you cannot afford to ignore. Under Section 194-IB of the Income Tax Act, individuals—including those not running a business or under tax audit—must deduct 2% TDS before paying rent and deposit it with the government. Missing this step could land you in hot water with hefty penalties.

Who is this rule for?

Contrary to popular belief, Section 194-IB is not just for companies or professionals. It also applies to salaried individuals who are paying a monthly rent exceeding ₹50,000. That includes many urban dwellers in cities like Bengaluru, Mumbai, Hyderabad, and Gurugram, where premium rents are the norm.

Key requirement: If your rent crosses ₹50,000 per month, you must deduct 2% TDS and file Form 26QC with the government. You must also give your landlord Form 16C, a TDS certificate.

The deduction must be made once during the financial year—either in March or in the final month of tenancy, whichever is earlier.

Real-life cases: How tenants are getting penalised

Cases highlighted by TaxBuddy.com, a tax compliance platform, show how costly non-compliance can be:

  • Abhishek, a salaried individual, paid ₹55,000 rent every month but failed to deduct TDS. Result: a penalty of ₹1,00,000 from the Income Tax Department.

  • Rohan, another tenant, was paying ₹60,000 monthly since April 2022. He ignored the TDS rules for two years. When he finally tried to comply in April 2025, he had to pay ₹37,000 in interest and late fees—more than the actual TDS amount.

These are not isolated incidents. As tax authorities intensify scrutiny on high-value personal transactions, rent payments are squarely on the radar.

Penalties for non-compliance

Failing to comply with Section 194-IB invites a cascade of penalties:

  • Late filing fee: ₹200/day under Section 234E, capped at the TDS amount.

  • Interest:

    • 1% per month for failure to deduct

    • 1.5% per month for failure to deposit TDS (Section 201(1A))

  • Penalty: ₹10,000 to ₹1,00,000 under Section 271H

  • Prosecution: Under Section 276B, non-compliance can result in 3 months to 7 years of imprisonment

Other TDS rules you should know

The rent-related TDS rule is part of a broader framework targeting high-value personal transactions:

  • Section 194-IA: 1% TDS on property purchases over ₹50 lakh

  • Section 194M: 2% TDS on personal payments (over ₹50 lakh) to contractors or professionals

  • Section 194S: 1% TDS on peer-to-peer crypto transactions

A cautionary tale for high-rent tenants

With premium urban rentals becoming common, salaried individuals need to update their tax planning. Renting a ₹60,000/month flat without deducting TDS might seem harmless—until you’re staring at five-digit fines.

Tenants in posh apartments or tech corridors must remember: a routine rent payment can easily turn into a tax offence if this rule is overlooked.

Pro tip: File Form 26QC and issue Form 16C to your landlord before the financial year ends or before you vacate the property—whichever comes first.

For salaried tenants, awareness and compliance with Section 194-IB isn’t just good practice—it’s financial self-defence.