Key Highlights
- Section 397 (old 194IB): Individuals/HUF paying rent above Rs 50,000/month — TDS at 2% (reduced from 5% — Budget 2024)
- Section 399B (old 194I): Companies/firms paying rent — TDS at 10% (land/building) or 2% (plant/machinery)
- Section 399B threshold: Rs 2,40,000/year
- TDS on rent is deducted annually (Section 397 for individuals) or monthly (Section 399B for businesses)
- Form 16C: TDS certificate issued by tenant to landlord under Section 397
- Form 26QC: TDS return for Section 397 transactions
Legal Reference
Section 397 (TDS on rent by individual/HUF — 194IB), Section 399B (TDS on rent by business — 194I), ITA 2025 | Budget 2024: Section 397 rate reduced to 2% effective 1 October 2024
1. Section 397: TDS on Rent by Individuals and HUF
Applicable when an individual or HUF (who is not subject to tax audit) pays rent to a landlord for residential or commercial property:
- Threshold: Rent exceeds Rs 50,000 per month
- TDS Rate: 2% (reduced from 5% by Budget 2024, effective 1 October 2024)
- When to deduct: At the end of the financial year OR when leaving the property — whichever is earlier
- One-time annual deduction (not monthly)
- TDS return: Form 26QC filed within 30 days
- TDS certificate: Form 16C issued to landlord within 15 days of Form 26QC
2. Section 399B: TDS on Rent by Businesses
Applicable when any taxpayer (company, firm, LLP, individual subject to audit) pays rent for use of land, building, or equipment:
- Threshold: Rs 2,40,000 per year (aggregated across the year)
- Rates: 10% (land, building, furniture, fittings); 2% (plant, machinery, equipment)
- When to deduct: Monthly or at the time of credit — whichever is earlier
- TDS return: Form 26Q quarterly
3. Comparison: Section 397 vs Section 399B
| Feature | Section 397 | Section 399B |
|---|
| Applicable to | Individual/HUF (non-audit) | All — companies, firms, audit cases |
| Threshold | Rs 50,000/month | Rs 2,40,000/year |
| Rate (land/building) | 2% | 10% |
| Rate (machinery/plant) | N/A | 2% |
| Deduction timing | Annual (at year end or exit) | Monthly (at credit/payment) |
| TDS return | Form 26QC | Form 26Q |
| TDS certificate | Form 16C | Form 16A |
4. Practical Example: Individual Paying Rent
Illustrative only. Amit rents a house in Delhi for Rs 60,000 per month (above Rs 50,000 threshold). Full year rent = Rs 7,20,000. At year end (31 March 2027), he deducts TDS: Rs 7,20,000 x 2% = Rs 14,400. He files Form 26QC within 30 days and pays Rs 14,400 to the government. He issues Form 16C to his landlord for Rs 14,400 TDS.
5. Higher TDS for No PAN Landlord
If the landlord does not provide PAN, TDS under Section 397 must be deducted at the higher of 2% or 20% — resulting in TDS of 20%. Always collect landlord PAN before making rent payments to avoid this higher rate and the associated complications.
6. Why TaxClue
TDS on rent compliance — Form 26QC filing, Form 16C issuance, and rate determination — requires precision. TaxClue assists both tenants with TDS compliance and landlords with TDS credit reconciliation. Contact us for TDS on rent advisory under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is TDS on rent and who must deduct it?
TDS on rent must be deducted by tenants paying rent for property. Under ITA 2025, there are two provisions: Section 397 applies to individuals and HUFs paying rent above Rs 50,000 per month — TDS at 2% (reduced from 5% by Budget 2024). Section 399B applies to companies, firms, and audit-case individuals/HUFs paying rent above Rs 2,40,000 per year — TDS at 10% (land/building) or 2% (plant/machinery).
What is the TDS rate on rent after Budget 2024?
Budget 2024 reduced the TDS rate under Section 397 (old 194IB) from 5% to 2% for rent paid by individuals and HUFs — effective 1 October 2024. The Section 399B (old 194I) rate remains 10% for land and building rent and 2% for plant and machinery. So an individual paying Rs 60,000 per month rent to a landlord now deducts only 2% TDS annually (at year end) instead of the earlier 5%.
When must TDS on rent be deducted by individuals?
Under Section 397 of ITA 2025, individuals and HUFs must deduct TDS at the end of the financial year (31 March) or when vacating the rented property — whichever is earlier. It is a one-time annual deduction (not monthly). After deducting TDS from the last month rent, the tenant must file Form 26QC within 30 days of deduction and issue Form 16C to the landlord within 15 days of Form 26QC filing.
What is Form 26QC?
Form 26QC is the online TDS return filed by individual and HUF tenants under Section 397 of ITA 2025 for rent TDS. It must be filed within 30 days from the end of the month in which TDS is deducted. The form requires details of the landlord (name, PAN, address), the total rent paid, and the TDS deducted. After Form 26QC is filed, Form 16C (TDS certificate for the landlord) can be downloaded from the TRACES portal.
What happens if I forget to deduct TDS on rent?
Failure to deduct TDS on rent makes the tenant an assessee in default under Section 407 of ITA 2025. Interest at 1% per month under Section 415 applies from the date TDS should have been deducted to the date of actual deduction. Additionally, the tenant may face penalties. The landlord is still liable to pay tax on the full rent income, but the tenant loses the right to deduct the full rent expense if TDS is not deducted.
