How Tenants Can Claim Refund for Excess Rent TDS

TDS Deducted at 5% Post October 1, 2024: How Tenants Can Claim Refund for Excess Rent TDS and What Landlords Should Do?

Background: TDS on Rent under Section 194IB

Section 194IB of the Income Tax Act mandates that individual or HUF tenants (not liable to tax audit) must deduct TDS on rent exceeding ₹50,000 per month. Key change:

• Prior to October 1, 2024: TDS @ 5%
• From October 1, 2024: TDS reduced to 2%

Due to the recent rate change, many tenants mistakenly continued to deduct 5% TDS even after the rate was lowered to 2%. As a result:

• Landlords received credit of only 2% in their Form 26AS
• The remaining 3% TDS is held in suspense
• Tenants cannot adjust the extra TDS for a different financial year
• In many cases, landlords are unable or unwilling to adjust this excess with future rent payments

However, due to lack of awareness, many tenants continued deducting 5% post-October 1, 2024. This created several complications.

Issue at Hand

• Landlords’ Form 26AS reflects only 2% credit, despite 5% being deducted and deposited.
• The remaining 3% is held in “suspense” in the TRACES system.
• Tenants cannot adjust this extra 3% TDS in a different financial year.
• No auto-adjustment or refund mechanism for landlords.
• Landlords unwilling or unable to adjust future rents against the excess.

Ans : Claim a Refund for Excess TDS Deducted : According to the Income Tax Department’s TRACES e-tutorial, only TDS deductors (i.e. tenants) can apply for a refund of excess TDS via the TRACES portal.  Only the deductor (tenant) can claim the excess TDS refund using Form 26B through the TRACES portal.

Step-by-Step Guide: How to Apply for TDS Refund on TRACES

Step 1: Login : Visit TRACES Portal. Use TAN login credentials

Step 2: Initiate Refund: Go to: Statement / Payment → Request for Refund

Step 3: Checklist : Review refund eligibility and click “Proceed.”

Step 4: Select Section & Reason: Choose:

• • “Refund Request for Challan other than sec. 195”
  • Reason: “Excess TDS Deducted”

Step 5: Enter Challan & Scheme Details: Provide:

• • Challan reference number
  • Appeal/Vivad se Vishwas details (if applicable)

Step 6: Bank Details : Enter TAN-linked bank account information.

Step 7: Submit Request : Click “Submit Refund Request.”

Step 8: Upload DSC : Upload a valid Digital Signature Certificate (DSC)

Step 9: Submit Form 26B Acknowledgment : Submit the signed acknowledgment to the TDS Assessing Officer within 14 days (mandatory)

Step 10: Track Status: Go to: Statement/Payment → Track Refund Request and track using

• Refund request number
• TAN & Financial Year

Additional Document Demands by TDS Officers:

Tenants can file Form 26B online to claim a refund of the excess TDS deducted (3% extra). However, post e-filing, CPC asks tenants to courier the printout of Form 26B acknowledgment to the jurisdictional TDS officer.  Tenants are often asked to submit several supporting documents.  Documents Typically Required by TDS Officer

• Rental agreement
• Form 26QC (Challan-cum-statement)
• PAN card of tenant
• Bank statement for the entire year showing rent payment and TDS deduction (proof of rent paid and TDS deposited)
• Cancelled cheque
• Notarized Indemnity Bond on ₹100 stamp paper
• Acknowledgment of Form 26B

Even after submitting all required documents, refunds are granted solely at the discretion of the TDS officer, making the process inconsistent and unpredictable. Now tenants need to be vigilant with TDS rate changes and should retain complete documentation. There is a strong need for a more transparent and standardized refund process under Form 26B.

Important Rules for Income Tax Refund Eligibility

• DSC of authorized signatory must be registered on TRACES.
• PAN of deductor must match TAN master.
• No outstanding tax demands should exist against PAN/TAN
• Max 5 challans allowed per request.
• Refund request can include maximum 5 challans
• Each challan must have unclaimed balance > ₹100
• Refund cannot exceed unclaimed balance.
• All relevant TDS returns must be processed before applying.

Why Landlords See Only 2% TDS in his Form 26AS :

According to industry experts, TRACES only credits TDS up to the applicable rate, i.e., 2% post October 2024, regardless of the actual 5% deducted and paid.

CA Swatantra Kumar Singh notes Co-founder / Partner of Rajput Jain and Associates : “Even the correction window of Form 16C doesn’t allow manual override to reflect TDS credit beyond 2%.”  This causes mismatches in Form 26AS and AIS, confusing landlords during return filing.

Alternative Option: Adjustment TDS with Future Rents :

According to Swatantra Kumar Singh, Co-founder / Partner of Rajput Jain and Associates: “Tenants can adjust the excess TDS with future rent payments within the same financial year, provided the landlord agrees.”  However, this is not automated or enforceable – it requires mutual consent and clear documentation.

Conclusion & Recommendation :

If you’ve deducted TDS at 5% instead of the revised 2% rate after October 1, 2024, you must take action promptly. Either coordinate with your landlord for adjustment in future rent payments or follow the refund request process via TRACES. If TDS was wrongly deducted at 5% instead of 2% after October 1, 2024, tenants must act promptly:

• Initiate a refund request via Form 26B on TRACES
• Submit all supporting documents promptly to the TDS Officer
• Coordinate with landlords if they’re willing to adjust the excess in future rent
• While TRACES has improved refund processing, the system still relies heavily on manual intervention by TDS officers. Thus, timely compliance and proper documentation are essential for successful recovery.
• With the Income Tax Department’s new e-tutorial and streamlined TRACES portal process, it’s now easier to recover such excess deductions  but you must ensure timely submission and error-free documentation.