Your tenant deducted under the wrong section — fixing a 194-IB error on NRI rent

Section 194-IB lets a tenant deduct 5% on high-value rent without needing a TAN — it is the simple, well-known route, and it is built for resident landlords. Section 195 is the route for a non-resident landlord: it is deducted at a different rate, it requires the tenant to hold a TAN, and the TDS is reported in a quarterly Form 27Q.

When a tenant uses 194-IB for an NRI landlord, three things go wrong at once. The amount deducted is usually too low. The TDS is sitting under a section that didn't apply to the tenancy. And the deduction was reported in the wrong return, so your credit doesn't sit cleanly against your PAN as foreign-landlord TDS. It is not catastrophic — the money was deducted and deposited — but it is in the wrong place under the wrong label, and that has to be corrected before you can rely on it.

It helps to see who is on the hook, because the fix protects both sides.

For you, the landlord, the risk is your tax credit. If the TDS is reported under 194-IB rather than as Section 195 against your PAN, the figure in your Form 26AS may not align with what you need to claim, and a refund can stall. For the tenant, the risk is larger: as the deductor, the tenant is responsible for deducting under the correct section and for any shortfall. Having used the wrong, lower-rate section, the tenant can be treated as having under-deducted, with interest running on the gap.

This is why the correction is worth doing properly rather than ignoring: leaving it unfixed keeps both of you in a position that can surface later, and the tenant's exposure in particular grows with time as interest accrues.

The fix is a re-characterisation — moving the TDS onto the section that should have applied and reporting it correctly. In practice it runs in a few steps, mostly on the tenant's side because the tenant is the deductor.

First, the tenant takes a TAN, because Section 195 requires one and the 194-IB route never did. Next, the shortfall is computed and deposited — Section 195 is usually more than the 5% already taken, so the gap, with interest for the delay, is paid in. Then the TDS is reported under Section 195 in Form 27Q against your PAN, and the earlier 194-IB reporting is corrected through the TRACES portal so it doesn't double up or sit under the wrong head. Once that flows through, the credit appears correctly in your Form 26AS, and you can claim it on your return — taking the 30% standard deduction under Section 24(a) as normal, so any genuine over-deduction comes back as a refund.

The order matters: the credit only lands cleanly once the correction is posted, so your return is filed (or revised) around the corrected position, not the original wrong one.

Sameer, an NRI in the US, lets a flat in Pune for ₹60,000 a month. For a full year his tenant deducted 5% under Section 194-IB — the resident-landlord rule — and filed it accordingly, because neither of them realised Sameer's non-resident status changed the section.

When Sameer goes to file his Indian return, the TDS doesn't sit cleanly against his PAN as foreign-landlord tax, and his CA spots that 194-IB was never the right provision. The correction begins with the tenant: the tenant applies for a TAN, the CA computes the difference between the Section 195 amount that should have been deducted and the 5% actually taken, and that shortfall is deposited with interest. The TDS is then re-reported under Section 195 in Form 27Q against Sameer's PAN, and the original 194-IB entry is corrected on TRACES.

Once the credit shows correctly in Sameer's Form 26AS, his CA files his return, applies the 30% standard deduction under Section 24(a) to the rent, and sets the corrected TDS against his real liability. Sameer's credit is now sound, and the tenant is no longer carrying an open under-deduction with interest building on it.