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The 2-Minute Summary
If you are an individual or HUF paying more than Rs. 50,000 per month as rent for any property, you are required to deduct TDS even if you have no other TDS obligation. This provision was introduced to bring high-value residential and commercial rent arrangements into the TDS net for individual payers.
The rate is 2%. The deduction is not monthly. It happens only once: in the last month of the Tax Year (March) or the last month of the tenancy, whichever comes first. No TAN is required. You deposit using Form 26QC.
Example: Rahul, a salaried professional, rents a flat in Mumbai for Rs. 75,000 per month. He is not liable to tax audit and has no TAN. In March 2027, he deducts TDS of 2% on the total annual rent: 2% of Rs. 9,00,000 = Rs. 18,000. He deposits this via Form 26QC using his PAN. The landlord gets Form 16C.
Under Income Tax Act 1961: Section 194IB of the Income Tax Act 1961. Now Section 393(1) Sl. No. 2(i) of the Income Tax Act 2025. Rate and rules unchanged.
At a Glance
| Item | Details |
| New Act Reference | Section 393(1), Sl. No. 2(i) of Income Tax Act 2025 |
| Old Act Reference | Section 194IB of Income Tax Act 1961 |
| Who Deducts | Person other than specified person — i.e., individual or HUF not liable to tax audit |
| Rate | 2% |
| Threshold | Rs. 50,000 per month or part of a month |
| When to Deduct | Once only — last month of Tax Year or last month of tenancy, whichever is earlier |
| TAN Required | No. Use PAN. |
| Form to Deposit TDS | Form 26QC (online, TIN-NSDL or income tax portal) |
| TDS Certificate to Landlord | Form 16C |
Who This Applies To
This provision applies to any individual or HUF who is not a specified person under the Act. In practical terms, it covers:
- Salaried employees paying rent above Rs. 50,000/month.
- Self-employed individuals or professionals whose business turnover is below Rs. 1 crore or professional receipts below Rs. 50 lakh (those above this threshold become specified persons and fall under Sl. 2(ii) instead).
- HUFs with similar turnover below the specified person threshold.
The moment your business turnover exceeds Rs. 1 crore in a preceding Tax Year, you become a specified person. You then fall under Sl. 2(ii) (Section 194I rules), must obtain a TAN, and must deduct monthly rather than annually.
The Once-a-Year Deduction Rule
Section 393(1) Note 1 to Sl. 2(i) is very specific. Tax shall be deducted at the time of:
- Credit of rent to the payee’s account, or
- Payment in cash, cheque, draft, or any other mode,
whichever is earlier, for the last month of the Tax Year or the last month of the tenancy, as the case may be.
This means if you pay monthly rent from April to March, you deduct TDS only in March. The TDS amount is on the entire year’s rent, i.e., 2% of 12 months’ rent, all deducted in one go in March.
If the tenancy ends mid-year, say in October, you deduct TDS in October (the last month of the tenancy) on the rent for April to October combined.
Example: Sunita rents an apartment from April 2026 to March 2027 at Rs. 60,000 per month. In March 2027, she deducts 2% on total rent of Rs. 7,20,000 = Rs. 14,400. She pays the landlord Rs. 60,000 – Rs. 14,400 = Rs. 45,600 in March and remits Rs. 14,400 as TDS via Form 26QC.
Example: Arun rents a shop from April to September 2026 at Rs. 80,000 per month and vacates in September. In September 2026 (last month of tenancy), he deducts 2% on Rs. 4,80,000 (6 months rent) = Rs. 9,600 and deposits it via Form 26QC.
What Rent Means Here
For Sl. 2(i), Section 402(30) specifies that ‘rent’ means only the payment for the use of land or building (including factory building) or land appurtenant to a building. The provision under Sl. 2(i) covers only land and buildings, not machinery, plant, or equipment. Those are covered under Sl. 2(ii) exclusively.
No TAN: How to Deposit
Unlike most TDS provisions, Sl. 2(i) does not require the deductor to obtain a Tax Deduction Account Number (TAN). You deposit TDS using your PAN alone through Form 26QC, available on the income tax portal or the TIN-NSDL website.
The due date for depositing TDS under this provision is 30 days from the end of the month in which TDS is deducted. Since deduction happens only once (in March), the deposit deadline is 30th April.
TDS Cannot Exceed Last Month’s Rent
Section 402(30) Note to Sl. 2(i) provides an important restriction: the TDS deducted shall not exceed the amount of rent payable for the last month of the Tax Year or the last month of the tenancy. This prevents a situation where TDS for the entire year exceeds one month’s rent.
Example: Priya pays Rs. 10,000 per month rent for the first 11 months and Rs. 10,000 in March. Total annual rent = Rs. 1,20,000. TDS of 2% = Rs. 2,400. This is within March rent of Rs. 10,000 so no issue. But if annual TDS computation somehow exceeded one month’s rent (unusual in practice), the cap applies.
Practical Compliance Checklist
- If you pay rent above Rs. 50,000 per month and are a salaried individual or below-threshold self-employed person: deduct 2% TDS in March (or in the last month of tenancy). You do not need a TAN.
- File Form 26QC online on the income tax portal within 30 days of March. Use your PAN and the landlord’s PAN.
- Issue Form 16C to your landlord within 15 days of filing Form 26QC. Download it from the TRACES portal.
- If your landlord has a lower TDS certificate under Section 395: deduct at the rate in the certificate.
- If you become liable to tax audit due to increased turnover: switch to Sl. 2(ii) from the next Tax Year. Obtain TAN and start deducting TDS monthly.
Sl. 2(i) was specifically designed for the large number of salaried and self-employed individuals paying high urban rents who had no other TDS obligation. The once-a-year deduction, no-TAN requirement, and Form 26QC filing make it simpler than most TDS provisions. The key is remembering to actually do it in March and not let the April 30 deposit deadline slip.
