TDS on Rent: Complete Guide to Section 194I and 194IB
Quick Summary
TDS on rent means the tenant deducts tax from rent before paying the landlord and deposits it with the government under the Income Tax Act, 1961.
Section 194I applies to companies, firms, LLPs, trusts, co-operative societies, and individuals or HUFs who were liable to tax audit in the immediately preceding financial year.
Section 194IB applies to individuals and HUFs who are not liable to tax audit and pay rent exceeding ₹50,000 per month.
Under Section 194I, TDS applies when rent exceeds ₹50,000 per month or part of a month during the financial year.
Under Section 194IB, TDS applies when rent exceeds ₹50,000 per month.
Under Section 194I, the TDS rate is 10% for rent of land, building, furniture, or fittings, and 2% for rent of plant and machinery.
Under Section 194IB, the TDS rate is 2%.
TAN is required under Section 194I.
TAN is not required under Section 194IB. PAN of both tenant and landlord is required instead.
Under Section 194I, TDS is deducted at the time of credit or payment, whichever is earlier.
Under Section 194IB, TDS is deducted once, at the time of credit or payment for the last month of the financial year or the last month of tenancy, whichever is earlier.
Section 194I compliance generally involves Form 26Q and Form 16A.
Section 194IB compliance generally involves Form 26QC and Form 16C.
Under Section 194I, TDS is usually deposited by the 7th of the following month, and for March deductions by 30 April.
Under Section 194IB, Form 26QC must be filed within 30 days from the end of the month in which TDS is deducted.
If rent is paid to a non-resident landlord, Section 195 applies instead of Section 194I or Section 194IB.
Where GST is shown separately in the rent invoice, TDS is generally deducted on the rent amount excluding GST.
Wrong section selection, outdated threshold use, late filing of Form 26QC, and incorrect 194IB deduction timing are among the most common rent TDS mistakes.
What is TDS on Rent?
Tax Deducted at Source (TDS) on rent is a mechanism under the Income Tax Act, 1961 that requires the tenant (the payer of rent) to deduct a specified percentage of the rent amount before making payment to the landlord, and deposit that deducted amount directly with the government.
The purpose is twofold: it brings rental income into the formal tax system, and it ensures tax collection at the point of payment rather than at year-end assessment. For landlords, the TDS deducted appears as a credit in their Form 26AS and can be set off against their final tax liability.
Two sections govern TDS on rent in India: Section 194I, which applies to businesses and tax-audited entities, and Section 194IB, which applies to individual tenants and HUFs not under tax audit. Understanding which section covers your situation is the first step to correct compliance.
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Section 194I vs Section 194IB: Which Applies to You?
The single most common source of confusion around TDS on rent is not knowing which section to apply. Here is a direct comparison:
Table 1: Section 194I vs Section 194IB - Side-by-Side Comparison
| Parameter | Section 194I | Section 194IB |
|---|---|---|
| Who must deduct | Companies, firms, individuals/HUFs liable to tax audit under Section 44AB | Individuals and HUFs NOT liable to tax audit u/s 44AB |
| Annual threshold | ₹6,00,000/year (₹50,000/month) effective April 1, 2025 | ₹50,000/month (no annual equivalent) |
| TDS rate | 10% (land/building/furniture), 2% (machinery) | 2% (effective October 1, 2024) |
| TAN required? | Yes | No — only PAN of landlord and tenant |
| Deduction timing | At time of credit/payment (monthly or as per agreement) | Once per year — at credit/payment of last month's rent of FY or last month of tenancy |
| TDS return form | Form 26Q (quarterly) | Form 26QC (within 30 days of deduction) |
| TDS certificate | Form 16A (quarterly) | Form 16C (within 15 days of filing 26QC) |
| Applicable to | Commercial and residential rent, machinery rent | Residential and commercial property rent |
Simple rule: If your business was subject to a tax audit in the previous financial year (turnover > ₹1 crore for business / > ₹50 lakh for profession), you fall under Section 194I. If you are a salaried individual or a small business owner paying monthly rent above ₹50,000, you fall under Section 194IB.
TDS Rates on Rent
Table 2: TDS Rates Under Section 194I
| Nature of Payment | TDS Rate | No PAN furnished |
|---|---|---|
| Rent of land, building, or furniture | 10% | 20% |
| Rent of plant, machinery, or equipment | 2% | 20% |
Table 3: TDS Rate Under Section 194IB
| Applicable To | TDS Rate (from Oct 1, 2024) | Earlier Rate (before Oct 1, 2024) | No PAN furnished |
|---|---|---|---|
| Individuals/HUFs (not under tax audit) | 2% | 5% | 20% |
For all other payment types, refer to the full TDS rate table for FY 2025-26.
Budget 2024 Update: The Finance (No.2) Act, 2024 reduced the TDS rate under Section 194IB from 5% to 2%, effective October 1, 2024. If you deducted TDS at 5% for the last month's rent credited before October 1, 2024, that rate was correct for that period.
TDS on rent paid to NRI: TDS is governed by Section 195 (not 194I or 194IB). TDS must be deducted at rates in force, which may include surcharge and cess, and can vary based on DTAA provisions or a lower deduction certificate, if applicable. The deductor must have a TAN and file Form 27Q.
Threshold Limits (Updated for 2025-26)
Section 194I Threshold (Updated in Budget 2025)
Budget 2025 (Finance Act 2025) raised the Section 194I threshold from ₹2,40,000 per year to ₹6,00,000 per year (effectively ₹50,000 per month), applicable from April 1, 2025.
This means that from FY 2025-26, a company or audited firm is not required to deduct TDS under Section 194I if the total rent paid to a single landlord in a financial year does not exceed ₹6,00,000.
Before April 1, 2025: The threshold was ₹2,40,000/year (equivalent to ₹20,000/month). From April 1, 2025 onwards: Threshold is ₹6,00,000/year (₹50,000/month equivalent).
Section 194IB Threshold (Unchanged)
For individuals and HUFs not liable to tax audit, the threshold remains ₹50,000 per month. If monthly rent exceeds ₹50,000 in any month, the tenant must deduct TDS under Section 194IB.
Important: The threshold is checked per landlord, not per property. If you pay ₹30,000 each to two different landlords, neither payment triggers TDS (as each is below ₹50,000/month). But if you pay one landlord ₹55,000/month, TDS must be deducted on the full ₹55,000.
For thresholds across all other TDS sections, see the complete guide on TDS threshold limits under the Income Tax Act.
Who is Liable to Deduct TDS?
Under Section 194I, the following entities must deduct TDS when paying rent:
- All companies (public and private)
- Partnership firms and LLPs
- Co-operative societies
- Trusts
- Individuals and HUFs whose turnover from business exceeded ₹1 crore or whose gross professional receipts exceeded ₹50 lakh in the preceding financial year (i.e., those liable to tax audit under Section 44AB)
Under Section 194IB, the following must deduct TDS:
- Any individual or HUF not covered under Section 44AB who pays monthly rent exceeding ₹50,000 to a resident landlord
How to Calculate TDS on Rent
Example 1: Company paying office rent (Section 194I)
- Monthly rent: ₹80,000
- Annual rent: ₹9,60,000 (exceeds ₹6,00,000 threshold)
- Asset type: Commercial building
- TDS rate: 10%
Monthly TDS deduction: ₹80,000 × 10% = ₹8,000
Net payment to landlord: ₹72,000
Example 2: Individual paying residential rent (Section 194IB)
- Monthly rent: ₹60,000
- TDS rate: 2%
- Deduction timing: Once at year-end (or when vacating)
If deducting at March year-end for full FY: ₹60,000 × 12 months × 2% = ₹14,400 (total TDS for the year)
Alternatively, deduct 2% of the last month's payment: ₹60,000 × 2% = ₹1,200, then top-up to cover full year liability.
Note for Section 194IB: TDS under 194IB is deducted only once, at the time of credit/payment for the last month of the FY (i.e., March) or the last month of tenancy, whichever is earlier. The 2% rate applies to the total annual rent paid or credited up to that point, not just the last month's rent.
Section 194IB: TDS for Individual Tenants
Section 194IB was introduced to bring individual tenants paying high rents into the TDS net, even if they are not running a business subject to tax audit.
Key Features of Section 194IB
- Who it applies to: Any individual or HUF who is NOT required to get their accounts audited under Section 44AB of the Income Tax Act.
- Threshold: Monthly rent exceeding ₹50,000 to a single resident landlord.
- TDS rate: 2% (effective October 1, 2024; previously 5%).
- TAN not required: Unlike Section 194I, you do not need a Tax Deduction Account Number (TAN). You only need:
- Your own PAN (as deductor)
- The landlord's PAN (as deductee)
- Deduction frequency: Once per financial year — at the time of credit or payment for the last month of the FY, or the last month of the tenancy period if you vacate mid-year.
- Filing: Deposit TDS and file Form 26QC (a challan-cum-statement on TIN-NSDL portal) within 30 days from the end of the month in which the deduction was made.
- Certificate: Issue Form 16C to the landlord within 15 days of filing Form 26QC. Form 16C can be downloaded from the TRACES portal.
What If the Landlord Doesn't Have a PAN?
If the landlord fails to provide their PAN, TDS must be deducted at 20% instead of 2%, under Section 206AA .
GST and TDS on Rent
A very common compliance mistake involves applying TDS on the GST-inclusive invoice amount. The correct rule is:
TDS must be deducted on the base rent amount only, excluding the GST component.
If a landlord raises an invoice as follows:
| Component | Amount |
|---|---|
| Base Rent | ₹1,00,000 |
| GST @ 18% | ₹18,000 |
| Total Invoice | ₹1,18,000 |
TDS should be deducted on ₹1,00,000 only, not ₹1,18,000.
- TDS (at 10% under 194I): ₹10,000
- Net payment to landlord: ₹1,00,000 − ₹10,000 + ₹18,000 GST = ₹1,08,000
Why? GST is a tax collected by the landlord on behalf of the government. It is not income to the landlord, so TDS does not apply. This position is supported by CBDT circulars clarifying that TDS is applicable on the value of the taxable supply, excluding GST.
TDS on Rent Paid to NRI
When rent is paid to a non-resident landlord, Section 194I and 194IB do not apply. Instead, Section 195 governs TDS.
- TDS must be deducted at rates in force, which may include surcharge and cess, and can vary based on DTAA provisions or a lower deduction certificate, if applicable.
- Deductor must obtain a TAN.
- Filing: Form 27Q (quarterly TDS return for non-resident payments)
- The NRI landlord may apply to their Assessing Officer for a lower deduction certificate under Section 197.
- If the NRI landlord has a tax treaty with India (DTAA - Double Taxation Avoidance Agreement), the applicable rate may be lower than the standard rate. The tenant should obtain Form 10F and a Tax Residency Certificate from the landlord in such cases.
When is TDS on Rent NOT Applicable?
TDS under Section 194I is not deductible in the following situations:
- Below threshold: Total rent paid to a single landlord does not exceed ₹6,00,000/year (from FY 2025-26) under Section 194I, or ₹50,000/month under Section 194IB
- Refundable security deposit: A security deposit that is fully refundable at end of tenancy is not income to the landlord, so TDS does not apply
- Warehouse charges paid to the government: Payments to the Central Warehousing Corporation or State Warehousing Corporations are exempt
- Films exhibition receipts: Payments received for allowing exhibition of films are excluded from the definition of "rent" under Section 194I
- Individuals/HUFs below tax audit threshold: Under Section 194I, individuals and HUFs whose business turnover is ₹1 crore or less (or professional receipts ₹50 lakh or less) are exempt; they may still be covered under Section 194IB if monthly rent exceeds ₹50,000
Note on advance rent: Advance rent that is not refundable is treated as rental income and TDS must be deducted at the time of credit or payment of such advance. Refundable advance (security deposit) is exempt.
Section 197: Lower or Nil Deduction Certificate
If a landlord's total income for the financial year is expected to be below the taxable limit, they may not want TDS deducted at the full rate. In such cases, the landlord can apply to their Assessing Officer (AO) using Form 13 under Section 197 for a certificate authorizing deduction at a lower rate or nil.
- The AO evaluates the landlord's estimated total income and existing TDS credits
- If satisfied, the AO issues a certificate specifying the reduced TDS rate
- The landlord provides this certificate to the tenant
- The tenant is legally bound to deduct TDS at the rate specified in the certificate (which may be 0%) rather than the standard rate
- This certificate is valid for the financial year specified in it
This provision is particularly useful for senior citizens, retired landlords, or landlords with high business losses.
Forms and Filing Guide
TDS return forms differ based on who is deducting Form 26Q for audited entities under Section 194I, Form 26QC for individuals under Section 194IB, and Form 27Q for non-resident payments.
Table 4: TDS Forms for Rent Payments
| Form | Section | Who Files | When | Purpose |
|---|---|---|---|---|
| Form 26Q | 194I | Companies, firms, audited entities | Quarterly by 31st July, 31st Oct, 31st Jan, 31st May | Quarterly TDS return for all non-salary TDS including rent |
| Form 16A | 194I | Companies, firms, audited entities | Within 15 days of due date of TDS return | TDS certificate issued to landlord |
| Form 26QC | 194IB | Individual/HUF tenants | Within 30 days from end of month of deduction | Challan-cum-statement on TIN-NSDL; no TAN required |
| Form 16C | 194IB | Individual/HUF tenants | Within 15 days of filing Form 26QC | TDS certificate issued to landlord; downloadable from TRACES |
| Form 15G | 194I / 194IB | Landlord (below 60 years) | Before rent payment | Self-declaration by landlord that total income is below taxable limit; requests nil TDS |
| Form 15H | 194I / 194IB | Landlord (senior citizen, 60+) | Before rent payment | Same as 15G but for senior citizens |
TDS certificates Form 16A (for 194I) and Form 16C (for 194IB) must reach the landlord within the prescribed timelines.
How to File Form 26QC (Step-by-Step)
- Visit the TIN-NSDL portal ( tin.tin.nsdl.com ) → TDS on Rent of Property → Form 26QC
- Enter the tenant's PAN and landlord's PAN
- Enter the property address, tenancy period, total rent paid, and TDS amount
- Pay TDS online via net banking — the system generates an acknowledgement number
- Download Form 16C from the TRACES portal once the payment reflects (usually 2–3 working days)
- Issue Form 16C to the landlord within 15 days of filing
No TAN needed: The entire Form 26QC process runs on PAN numbers only, making it accessible to individual tenants.
Deposit Deadlines
Once deducted, TDS must be deposited using the correct TDS challan within the deadlines below.
Under Section 194I (Companies/Firms)
| Month of Deduction | Deposit Deadline |
|---|---|
| April to February | 7th of the following month |
| March | 30th April of the same year |
Under Section 194IB (Individuals)
- TDS is deducted once per year (at the last month of FY or end of tenancy)
- Form 26QC must be filed within 30 days from the end of the month in which TDS was deducted
Example: If TDS is deducted in March (last month of FY), Form 26QC must be filed by April 30.
Special Circumstances and Edge Cases
Sublet Property
When a tenant sublets property and receives rent from a sub-tenant, the sub-tenant becomes the payer of rent. If the sub-tenant is a company or audited entity paying more than ₹6,00,000/year in sub-rent, they must deduct TDS under Section 194I from the original tenant (now the sub-lessor). The original tenant-turned-sub-lessor is then the deductee.
Building and Furniture Rented from Separate Persons
If a tenant rents a building from Person A and furniture from Person B, the ₹6,00,000 threshold is applied separately to each payment. If rent to Person A is ₹5,00,000/year and rent to Person B is ₹2,00,000/year, TDS is only applicable on Person A's payment (as it exceeds the threshold). The payments are not aggregated.
Service Charges Included in Rent
- If service charges (maintenance, housekeeping, utilities) are bundled into the rent and cannot be separated, TDS applies on the full bundled amount
- If service charges are separately itemised on the invoice and are identifiable as distinct services, TDS may not apply to the service charge component
In practice, ensure your lease agreement separately identifies the rent and service charge components.
Cold Storage Facility Charges
Payments for cold storage facility usage are considered rent of plant and machinery and attract TDS under Section 194I at 2% (not 10%).
Hotel Room Charges for Seminars or Conferences
If a company books a hotel banquet hall or conference room on an extended or recurring basis for business purposes, and the arrangement is in the nature of a lease of premises, TDS under Section 194I applies. However, short-stay hotel bills for employees traveling on business generally do not attract TDS, as they are in the nature of hotel services rather than rental of premises.
Hall Rent Paid by Associations
When a registered association (trade body, RWA, cultural organisation) rents a hall on a recurring basis, TDS under Section 194I applies if the total annual rent to that landlord exceeds ₹6,00,000 and the association is liable to tax audit, or if monthly payments exceed ₹50,000 and the association qualifies as an individual/HUF payer under Section 194IB.
Penalties for Non-Compliance
Failure to deduct or deposit TDS carries significant financial consequences. TDS penalty consequences under the Income Tax Act cover five separate defaults interest, late-filing fees, and expense disallowance.
Table 5: Penalties and Interest for TDS Non-Compliance
| Default | Consequence | Provision |
|---|---|---|
| Failure to deduct TDS | 1% interest per month (or part of month) from the date TDS was deductible to the date of actual deduction | Section 201(1A) |
| TDS deducted but not deposited | 1.5% interest per month (or part of month) from the date of deduction to the date of actual deposit | Section 201(1A) |
| Late filing of TDS return | ₹200 per day until return is filed, capped at the TDS amount | Section 234E |
| Non-deduction penalty | Up to 100% of TDS amount (i.e., equal to the TDS not deducted) | Section 271C |
| Disallowance of rent expense | 30% of rent payments disallowed as a business deduction if TDS not deducted or not deposited before filing income tax return | Section 40(a)(ia) |
Key takeaway: The Section 40(a)(ia) disallowance is often the costliest consequence for businesses. If your company pays ₹12,00,000 in rent and fails to deduct TDS, ₹3,60,000 (30%) will be disallowed as a business expense, directly increasing taxable profit.
TDS Compliance Checklist
Use this checklist at the start of each tenancy and at each financial year-end:
Before First Payment
- Determine whether Section 194I or Section 194IB applies to you
- Obtain landlord's PAN
- Check if rent exceeds the applicable threshold (₹50,000/month)
- Obtain TAN registration if deducting under Section 194I
- Check if landlord has submitted Form 15G/15H or has a Section 197 certificate
During the Year (Section 194I - Companies/Firms)
- Deduct TDS monthly at correct rate (10% / 2%)
- Deduct on base rent only (excluding GST)
- Deposit by 7th of the following month (30th April for March)
- File Form 26Q quarterly
- Issue Form 16A to landlord quarterly
At Year-End (Section 194IB - Individual Tenants)
- Deduct TDS at 2% on total rent paid in the FY
- File Form 26QC on TIN-NSDL within 30 days of deduction
- Download and issue Form 16C to landlord within 15 days of filing 26QC
Businesses deducting TDS under Section 194I can use accounting software like BUSY to automate monthly deduction entries, challan deposit tracking, and Form 26Q preparation — so no deadline slips between payment cycles.
If Landlord is NRI
- Apply Section 195 (not 194I or 194IB)
- Obtain TAN
- Deduct at rates in force, subject to surcharge, cess, DTAA relief, and lower deduction certificate where applicable
- Collect Form 10F and Tax Residency Certificate from landlord
- File Form 27Q quarterly
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Conclusion
TDS on rent compliance hinges on one fundamental question: which section applies to you. For companies, firms, and audited entities, Section 194I, now with an updated ₹6,00,000 per year threshold from April 2025, is the operative provision. For individual tenants and small HUFs, Section 194IB governs the obligation, with a simpler PAN-based filing process using Form 26QC and Form 16C.
The most common errors, such as applying TDS on GST amounts, using the pre-2025 ₹2,40,000 threshold, ignoring Section 194IB for high-rent individual tenants, and missing Form 26QC deadlines, are all avoidable with a clear understanding of the rules. Moreover,using BUSY accounting software can helpTDS on rent compliance hinges on one fundamental question: which section applies to you.
BUSY accounting software includes built-in TDS computation, deposit reminders, and Form 26Q and 26QC support to help keep rent compliance on track.
