TDS on Rent: Everything You Need to Know
Renting a property might seem like a simple transaction, but if the rent amount crosses a certain limit, tax rules step in. TDS on rent is governed by Section 194I of the Income Tax Act. This section makes it mandatory to deduct tax before making rent payments in specific cases. Let’s explore everything you need to know about it, who it applies to, how much to deduct, and when to pay.
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What is TDS on Rent? Section 194I
Section 194I states that when a person pays rent exceeding a certain amount, tax must be deducted at source (TDS) before making the payment. This is applicable to both residential and commercial properties.
Applicability
TDS on rent applies if:
- The annual rent paid exceeds ₹2,40,000
- The payment is made by a business, company, firm, or any individual liable for a tax audit
- Rent includes payments for land, building, plant, equipment, furniture, or fittings
Threshold Limit
The threshold for deduction is ₹2,40,000 per year per landlord. If the total rent paid during a financial year is below this amount, TDS is not applicable.
Rate
The applicable TDS rate depends on the type of asset:
- 10% for land, building, or furniture
- 2% for plant and machinery
If the landlord doesn’t provide a valid PAN, TDS is deducted at 20%.
TDS Rate for Rent Payment Under Section 194I
The standard TDS rent payment rates are:
| Type of Rent | TDS Rate |
|---|---|
| Land or Building | 10% |
| Plant & Machinery | 2% |
| Without PAN (Any type) | 20% |
TDS Rate Rent Paid to NRI
If the rent is being paid to a Non-Resident Indian (NRI), Section 194I does not apply. Instead, Section 195 is applicable, and the rate depends on the Double Taxation Avoidance Agreement (DTAA) terms and the income slab. Typically, it ranges between 20% to 30%, plus surcharge and cess.
Know Who is Liable to Deduct TDS u/s 194I?
TDS must be deducted by:
- Companies and firms paying rent
- Individuals and HUFs who are subject to tax audit
- Tenants of commercial properties or high-rent residential properties
If you’re simply renting a house for personal use and your income isn’t subject to audit, you’re generally not liable to deduct TDS.
When Does TDS Need to Be Deducted for Section 194I?
TDS on rent should be deducted at the time of:
- Credit of the rent amount to the landlord’s account, or
- Actual payment—whichever happens earlier
So even if rent is not physically paid but just recorded in books, TDS applies.
How to Calculate TDS on Rent
Here’s a simple example:
- Monthly Rent: ₹30,000
- Annual Rent: ₹3,60,000
- TDS Rate: 10%
- TDS per month: ₹3,000
- Net payment to landlord: ₹27,000
- ₹3,000 must be deposited with the government under the landlord’s PAN
TDS is calculated on the full rent amount without (Goods and Services Tax) GST if the GST is shown separately on the invoice.
TDS on Residential vs Commercial Rent
- Residential Rent: Usually applies to individuals. TDS deduction depends on whether the payer is subject to tax audit.
- TDS on commercial rent: Applies more broadly, companies, firms, and businesses must deduct tax if rent exceeds ₹2,40,000 a year.
Both types are treated the same under Section 194I, but the context of use and payer’s status determine applicability.
TDS Deduction on Rent Payment by Individuals
Most salaried individuals renting homes for personal use don’t have to worry about TDS. However, if an individual or HUF is liable to audit under Section 44AB (i.e., their business turnover is over ₹1 crore or professional receipts exceed ₹50 lakh), they must deduct TDS when paying rent.
When TDS u/s 194I is Not Deductible?
- Rent paid is below ₹2,40,000 per year
- Payer is not subject to tax audit (individuals and HUFs with lower turnover)
- The payee provides a certificate for non-deduction under Section 197
- The payment is made to the government or statutory body where TDS is exempted
Always verify before skipping TDS, as non-compliance may attract penalties.
Time Limit for Depositing TDS?
- TDS deducted must be deposited:
- By the 7th of the following month, for all months except March
- By 30th April, for deductions made in March
Timely deposit avoids interest under Section 201 and late fees under Section 234E.
Non-Payment of TDS
- Failure to deduct or deposit TDS on rent can lead to:
- Interest at 1% to 1.5% per month
- Late fee of ₹200 per day until return is filed
- Penalty up to the TDS amount under Section 271C
- Possible disallowance of rent as an expense while computing taxable income
Non-compliance can cost more than the rent itself in some cases.
TDS on Advance Rent
If rent is paid in advance (e.g., one year in advance), TDS must be deducted at the time of payment. It should be calculated on the entire amount paid upfront and deposited within the due timeline.
If the agreement is later cancelled, and part of the advance is refunded, the landlord can claim a refund while filing their TDS return .
I am a Fellow Chartered Accountant (FCA) and LLB graduate with 10 years of experience in corporate auditing, taxation, and financial consulting. My expertise includes corporate audits, income tax planning, HSN code classification, and GST rate advisory. Through my blogs and articles, I aim to simplify corporate taxation, auditing, and GST compliance, making financial matters more accessible for professionals and business owners.
Frequently Asked Questions (FAQs)
- Who is required to deduct TDS on rent under Section 194I?Companies, firms, and individuals or HUFs liable for tax audit must deduct TDS if annual rent exceeds ₹2,40,000.
- When is TDS on rent not applicable under Section 194I?TDS is not applicable if rent paid during the year is less than ₹2,40,000 or if the payer is not subject to audit requirements.
- How do I calculate TDS on rent payments under Section 194I?Multiply the monthly rent by 12, check if it exceeds the ₹2,40,000 threshold, then apply the correct TDS rate (10% or 2%).
- What is the TDS rate for rent payments to Non-Resident Indians (NRIs) under Section 194I?Section 194I does not apply to NRI landlords. Instead, TDS is deducted under Section 195, generally at 20% to 30%, including surcharge and cess.
