Claimed HRA but skipped TDS on rent? The taxman wants answers

For those with legitimate HRA claims, the issue isn’t proving authenticity—it’s the potential liability for failing to deduct TDS on rent, said Prakash Hegde, a Bangalore-based chartered accountant.

“Those who have claimed genuine HRA don’t need to file an updated return,” said Bhawna Kakkar, founder of Kakkar & Company, Chartered Accountants.

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The department’s email suggests that if TDS hasn’t been deducted, the HRA claim could be invalid, nudging taxpayers to reassess their claims, Kakkar said.

TDS on rent: What the law says

Under India’s tax laws, tenants must deduct 2% TDS (reduced from 5% in October 2024) if their monthly rent exceeds ₹50,000—provided the landlord is a resident Indian. If the landlord is a non-resident Indian (NRI), the TDS rate jumps to 31.2%, regardless of rent amount.

“For resident landlords, the TDS rate is low, applies only when rent exceeds ₹50,000 and is to be deducted only in the last month of tenancy or in March, the last month of the financial year,” said Hegde. After deduction, tenants must deposit the amount using Form 26QC by seventh of the following month.

Failure to deduct or deposit TDS on time attracts penalties.

A 1% monthly interest is charged for non-deduction, while failure to deposit deducted TDS incurs a higher 1.5% monthly interest, Hegde explained. “For delays in filing e-TDS, ₹200 per day is payable until the eTDS return is filed. However, the upper limit of this late filing fee is equal to the TDS amount.”

TDS provisions on rent have been in place since FY18, yet many tenants still fail to comply, often due to a lack of awareness. Penalties and interest kick in only when the tax department flags a default, making non-compliance a lingering risk. The absence of large-scale enforcement so far may explain why many tenants remain unaware of their obligations.

Read this | You can now use TCS credit to reduce the TDS on your salary. Here’s how.

The latest tax notices should serve as a wake-up call. Hegde noted that these notices aren’t limited to FY24—they also cover previous financial years.

What you should do

Receiving a notice means the tax department may consider you a defaulter under Section 201, which deals with the consequences of not deducting or paying TDS. But there’s a way out.

“As per the proviso to Section 201, even if there is a TDS default, the assessee can provide the landlord’s tax return as proof that the rent was declared as income and taxes were duly paid,” said Kakkar.

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Hegde explained that tenants who receive such notices must file Form 26A and obtain a CA certificate confirming that the landlord has reported the rental income and paid the necessary taxes. “The CA has to verify the landlord’s ITR and payment details and certify that all the taxes due have been paid by the landlord,” he said.

This can help tenants avoid interest charges and daily penalties for late filing. However, TDS officers still have the discretion to impose a penalty equivalent to the TDS amount, even after proof is submitted.

For tenants who choose to file Form 26QC and pay TDS after receiving the notice, interest and late filing fees will apply. This would especially affect those taxpayers whose landlords haven’t declared rental income—without a CA certificate confirming tax payment, the tenant remains fully liable for the unpaid TDS.

Meanwhile, those who falsely claimed HRA should see these notices as a final warning. With the tax department already taking note, filing an updated return now is safer than facing a full-fledged scrutiny.

“Fake HRA claims have been under the radar of the income tax department. The recent notices issued with respect to HRA claims and co-relating them with TDS on rent expenses is an extension of the same,” said Janhavi Pandit, a Mumbai-based chartered accountant.

Also read | How you can claim deductions and save on taxes from rental income

In April 2024, the CBDT flagged discrepancies between high-value rent payments and landlords’ declared income but clarified there was no blanket reopening of past cases, noted Pandit, adding that with these new notices, taxpayers are being nudged to review their records and take corrective action—either by paying TDS with interest or revising their HRA claims.

“This is another way of nudging taxpayers to file updated income tax returns for assessment year 2022-23, the last date being 31 March 2025,” she added.