Income Tax Rule: Do You Need to Deduct TDS If Monthly Rent Exceeds ₹50,000? Here’s the Clear Answer

The Indian Income Tax Act lays down specific rules for deducting TDS (Tax Deducted at Source) on rent payments, especially when rent crosses a certain limit. Many landlords and tenants remain confused about how Section 194-IB actually works. A common misunderstanding is that TDS is calculated on the total rent collected from a property, regardless of how many tenants occupy it. But the law functions differently.

Recently, a query shared by a taxpayer, Mohit Jain, highlighted this confusion. Jain receives ₹80,000 per month as rent from his apartment, but the amount is split between two tenants, each paying ₹40,000 per month. His question:
Does TDS apply in this case? If yes, should it be deducted annually in March, and at what rate?
To clarify this, Moneycontrol approached well-known tax expert and CA Balwant Jain.

What Section 194-IB Says About TDS on Rent

According to Section 194-IB of the Income Tax Act, individuals and Hindu Undivided Families (HUFs) must deduct 2% TDS on rent if the monthly rent paid to the landlord exceeds ₹50,000.

This rule applies only when:

• The rent per tenant exceeds ₹50,000 per month.

• The payer (tenant) is an individual or HUF who is not liable to deduct TDS under regular tax audit rules.

The purpose of this provision is to ensure tax compliance while making the process simple for individuals who rent residential properties.

When Should TDS Be Deducted?

TDS under Section 194-IB is typically deducted once in a financial year, either:

• In the month of March,
  OR

• In the month when the tenant vacates the property, whichever comes earlier.

However, if rent is paid in cash or through banking channels, then TDS must be deducted at the time of payment itself, without waiting until March.

This ensures that the tax is deducted as soon as the landlord receives rent.

No TAN Required for Tenants

One important and tenant-friendly aspect of Section 194-IB is that tenants do not need a Tax Deduction Account Number (TAN) to deduct TDS on rent.

Instead, tenants must:

• Use Form 26QC, a combined TDS payment + reporting form,
  to deposit the TDS deducted with the government.

This one-page form simplifies the entire compliance process.

Is TDS Applicable on Total Rent or Per Tenant?

Tax expert Balwant Jain clarifies an important point:

The ₹50,000 monthly threshold applies PER TENANT, not per property.

This means:

• Even if the landlord receives ₹80,000 total rent,

• But each tenant pays less than ₹50,000,

Then TDS does NOT apply.

In the example of Mohit Jain:

• Tenant 1 pays ₹40,000 → below threshold

• Tenant 2 pays ₹40,000 → below threshold

Therefore, neither tenant is required to deduct TDS, since their individual monthly rent payments do not exceed ₹50,000.

Key Takeaways for Landlords and Tenants

✔ TDS applies only if a single tenant pays more than ₹50,000 per month.
✔ The landlord’s total rent is not relevant for TDS calculation.
✔ TDS rate is 2% under Section 194-IB.
✔ Deduction is done in March or when the tenant vacates, whichever is earlier.
✔ For cash or banking payments, TDS must be deducted at the time of rent payment.
✔ Tenants do not need a TAN; they can pay using Form 26QC.
✔ If rent per tenant is below ₹50,000, no TDS needs to be deducted.