Section 194I of Income Tax Act: TDS on Rent

In the world of real estate and corporate leases, rent is more than a monthly outflow, it’s a meeting point of relationships, responsibilities and regulations.

While it may feel like just another compliance tick, 194I is actually a strategic lever—promoting transparency, safeguarding government receipts, and embedding tax discipline into every lease or tenancy agreement, whether it’s a corporate warehouse, a co-working space or a modest residential flat.

With Budget 2025 elevating the annual threshold from ₹2.4 lakh to ₹6 lakh (or ₹50,000 per month) and fine-tuning rates for machinery, land and buildings, small businesses and individual landlords alike stand to benefit—but only if they grasp the nuances of timing, deductions and deposit deadlines.

---

What is Section 194I, and Who Does it Apply To?

Section 194I is the Income-tax Act provision that requires tax to be deducted at source on rent paid for land, buildings, furniture and fittings (at 10%) or plant, machinery and equipment (at 2%).

When does this apply?

• If you pay more than ₹50,000 in rent in any single month, or
• If your total rent in one year is over ₹6 lakh

Who has to do the tax-taking?

• Any business, company or group (not just people)
• Also people or Hindu Undivided Families if last year they made more than ₹1 crore from business or more than ₹50 lakh from a profession

Special case: Non-resident landlords

• If the rent goes to someone living outside India, you must take out 30% tax every time—no thresholds.

Suggested Read: Is Rental Real Estate Investment Still Good in 2025?

---

Defining “Rent” — What Counts?

Under Section 194I, “rent” isn’t just paying for your apartment—it covers almost any payment you make to use someone else’s asset. Here’s what falls under “rent”:

Types of Arrangements

• Lease, sub-lease or tenancy agreements
• Any other contract where you pay to use an asset

Assets Covered

• Land or building, including factory buildings
• Land attached to a building (for example, a parking lot or garden)
• Machinery, plant or equipment (think factory machines, office copiers)
• Furniture or fittings (desks, chairs, air-conditioners)

What’s NOT “rent”?

• Refundable security deposits—because you get them back
• Pure deposits (even if they sit in a “suspense account”)—unless they’re later adjusted as rent

What IS “rent” even if it’s odd timing?

• Advance rent paid for future months
• Credits to your account (not yet paid in cash)

Suggested Read: Karnataka Rent Control Act 1999

---

Thresholds and Rates: When and How Much?

Let’s break down exactly when you need to start deducting tax and how much you must withhold:

• Monthly trigger: If your rent payment to one landlord exceeds ₹50,000 in any month, you must deduct TDS that very month.
• Annual trigger: Even if no single month crosses ₹50,000, if the total rent you pay over a full year is more than ₹6 lakh, you must deduct TDS on the first payment once that ₹6 lakh mark is hit.

TDS Rates

What You’re Renting	Tax Rate Withheld
Machinery, plant or equipment	2%
Land, buildings, furniture or fittings	10%

For Non-resident Landlords

If the rent goes to someone living outside India, you withhold 30% every time—no matter how small the amount.

Example: You rent office space for ₹55,000 per month. Since it’s over ₹50,000, you must deduct 10% (₹5,500) from that month’s payment and give the landlord ₹49,500.

Suggested Read: How to Include Rental Income in ITR?

---

Budget 2025 Tweaks: What’s Changed and Why It Matters

This year’s Budget brought welcome relief for many renters and small businesses by fine-tuning Section 194I:

Higher annual threshold

• Old rule: No TDS until you paid over ₹2.4 lakh in a year.
• New rule (from April 1, 2025): No TDS unless you pay over ₹6 lakh in a year.

Monthly limit made crystal clear

The Finance Bill clarifies that ₹50,000 per month is the cut-off: if you pay ₹49,999 or less, no TDS; if you pay ₹50,000 or more, TDS kicks in immediately.

Why is Matters?

• Less paperwork for small renters. If you’re an individual or HUF with modest rent outgo, you now avoid the hassle of deducting and depositing TDS until you cross a much higher barrier.
• Better cash flow. You keep more money in hand, month by month, instead of temporarily holding it back for taxes.
• Simpler compliance. Clear, higher thresholds mean fewer surprises or last-minute calculations.

Suggested Read: How to Claim HRA without Rent Agreement?

---

Compliance Roadmap: From Deduction to Deposit

Navigating TDS on rent needn’t be intimidating. Here’s your step-by-step guide:

Timing the Deduction

Earlier of “credit or payment” rule: Deduct TDS when you either (a) credit the rent to the landlord’s account in your books, or (b) actually pay them—whichever happens first.

Collecting PAN and Avoiding 206AA

Always get the landlord’s PAN before you deduct. If they don’t provide it, you’ll have to withhold at a punitive 20% rate under Section 206AA.

Depositing the TDS

• Due date: Within 7 days of the end of the month in which you deducted.
• March exception: If you deduct in March, deposit by April 30.

Filing TDS Returns

Furnish Form 26QC for rent TDS and issue Form 16C (TDS certificate) to the landlord each quarter.

Quarterly due dates:

Quarter	Return & Certificate Due
April–June	July 15
July–September	October 15
October–December	January 15
January–March	May 15

Penalties for Lapses

• Late deduction: Interest at 1% per month from due date of deduction until actual deduction.
• Late deposit: Interest at 1.5% per month from deduction date to deposit date.
• Late filing: ₹200/day penalty (capped at the TDS amount) until you file the return.

Suggested Read: Why are 11 Month Rent Agreements the Standard?

---

Exceptions, Special Cases, and Practical Scenarios

Even with clear rules, real-world rentals can throw curveballs. Here are common twists and how to handle them:

Cold-Storage & Plant Rentals

• Payments for use of cold-storage facilities are treated as plant rentals, not building rent.
• Such payments fall under Section 194C (contract services) at 2%, not Section 194I.

Hotels, Seminars & Catering

• Room rent for seminar halls or conference rooms → TDS under Section 194I at 10% (if thresholds met).
• Catering charges for food and beverages → TDS under Section 194C at 2%.

Separate Building vs. Furniture Leases

• When you rent space and furniture from different owners, deduct TDS separately:
  • Building rent → 10% under Section 194I
  • Furniture rent → 2% under Section 194I

Advance Rent & Security Deposits

• Refundable security deposit → No TDS, since it’s returned in full.
• Non-refundable advance rent → Treated as normal rent; deduct TDS when paid or credited.

Non-Monthly Payment Schedules

• For quarterly or annual rent payments, deduct TDS at the time of each payment or credit, not on a monthly basis.
• Use the same rates and thresholds, applied to each payment event.

Association Hall Hires

• Associations (unincorporated bodies) paying hall rent are not “individuals/HUFs.”
• Once rent crosses ₹50,000/month or ₹6 lakh/year, deduct 10% under Section 194I.

Suggested Read: Mutual Funds vs. Rental Income

---

Pitfalls to Avoid & Best Practices

• Track rent monthly so you deduct TDS immediately upon crossing ₹50,000 or ₹6 lakh.
• Apply the correct rate: 2% for machinery, 10% for land/building/furniture, 30% for NRIs.
• Always collect the landlord’s PAN or face a 20% TDS rate under Section 206AA.
• Deposit TDS within 7 days of month-end (April 30 for March) and file returns on time to avoid interest and ₹200/day penalties.
• Issue Form 16C each quarter so landlords have proof of TDS paid.
• Encourage landlords to get a Form 15AA certificate via Form 13 if they qualify for lower deduction.
• Maintain a single digital folder with rent agreements, payment vouchers, TDS challans and PAN copies for audits.

Suggested Read: Can You Pay Rent to Your Parents and Claim HRA?

---

Conclusion

Knowing the TDS on rent limit is important for compliance with tax regulations. Whether you’re paying rent to an individual, a business, or an NRI, knowing when and how much TDS to deduct ensures you meet legal obligations and avoid penalties. Keep these guidelines in mind to manage your rental transactions smoothly.

---

Frequently Asked Questions