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

The Income Tax Department is sending notices to salaried taxpayers who claimed House Rent Allowance (HRA) but did not deduct tax at source (TDS) on rent payments in past financial years. The notices ask taxpayers to verify their HRA claims—and if incorrect, amend their tax returns before the 31 March deadline.

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.

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