New Delhi, March 25 -- Ritika pays Rs.60,000 rent every month for her apartment in Bengaluru. She keeps rent receipts, has a rent agreement, pays via bank transfer, and has shared his landlord's PAN with her employer to claim HRA. By most standards, her paperwork is in order.

Yet, a tax notice flagged her as non-compliant. The reason was something she wasn't aware was part of her legal duties as a tenant: she hadn't deducted tax on the rent she pays.

Under Section 194-IB of the Income Tax Act, tenants paying more than Rs.50,000 a month have to mandatorily deduct 2% tax deducted at source (TDS) on the annual rent in March or last month of tenancy. Failing to do so attracts penalties.

There are different rules for TDS on rent when the la...