Vikram Mondal, a professional in Bengaluru, pays ₹75,000 in monthly rent, placing him above the ₹50,000 threshold for 2% TDS under Section 194-IB. Instead of facing a large deduction in March, he plans ahead by setting aside the required amount starting in January, ensuring a smooth and timely deposit.
By staying proactive, Vikram turns a compliance requirement into a simple habit, avoiding last-minute stress, interest costs, and ensuring clean financial records while remaining fully compliant.
The 2% rule: Handling TDS on high-value rentals
Under Section 194-IB,₹50,000 in monthly rent”> tenants paying over ₹50,000 in monthly rent must deduct 2% TDS on the total annual rent and withhold it from the March payment; the responsibility rests on the tenant.
“The 2% TDS needs to be deducted from the annual rent, and if there are high rentals, then it is always suggested as a proactive strategy to make at least an understanding that 2% of the annual rent needs to be deducted in the March quarter. So one might as well start doing this from January to February only, because in March what happens is generally the rental is more or less equal to the 2% of the amount, and people should take up this 2% towards the end of March and deposit it with the authorities,” says Aarjav Jain, Executive Director and NRI Tax Expert, Dinesh Aarjav and Associates, Chartered Accountants.
“So, if the rent is above ₹50,000, TDS deduction is required in such cases. It is mainly in urban and tier 2 cities where rentals are above ₹50,000. For rentals below ₹50,000, that’s not a concern at all. Earlier, it was 5%, which people were not following, so now it has been reduced to 2% so that most people comply,” says Jain.
For salaried individuals, the main challenge is the cash flow impact, as the entire year’s TDS is adjusted in one go. “A practical approach is to adjust the March rent pay out by reducing the TDS amount and informing the landlord in advance or planning liquidity through savings or a bonus to avoid a last-minute strain,” says RItika Nayyar, Partner, Singhania & Co. You may tell your landlord that under Section 194-IB, you must deduct 2% TDS from the annual rent by March.
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Avoiding penalties and scrutiny
If you don’t comply with this TDS deduction, it is a tenant default, not a landlord’s. “You can attract scrutiny from the income tax, and over and above that, there would be TDS penalties and interest as well. So you would be involved in two things, one is scrutiny from income tax and, secondly, TDS compliances and then penalties accordingly,” says Jain.
“Post deduction, the process must be completed by depositing the TDS and filing Form 26QC within 30 days, i.e. by April 30 if deducted in March, followed by issuing Form 16C to the landlord,” says Nayyar.
Once you deposit the 2% TDS using their PAN and issue Form 16C, the amount reflects in the landlord’s Form 26AS. They use this to reduce their total tax liability when filing their ITR.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics