TDS on Rent: Section 194I of Income Tax Act Explained

Written by : Knowledge Center Team

2025-12-12

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TDS on rent is mandatory because rent is an additional income for individuals engaged in business, employment, and similar endeavours. The government account should be credited with the deducted tax through any authorised bank branch.

According to Section 194IB of the Income Tax Act, 1961, individuals and HUFs (not liable to tax audit) must deduct TDS at 2% if monthly rent exceeds ₹50,000. The rate was reduced from 5% to 2% effective Oct 1, 2024.

Under Section 194I, entities liable to tax audit must deduct TDS at:

10% on the rent of land, building, furniture, or fittings
2% on the rent of plant and machinery

Rental income from renting land, building, plant & machinery, furniture & fittings, is subject to Tax Deduction at Source (TDS).

This blog will walk you through the details of TDS on rental income, from definition to calculation.

Key Takeaways

Any person (other than individual/HUF) paying annual rent above ₹6 lakh must deduct TDS at 10% for land/building/furniture/fittings and 2% for plant & machinery.
Individuals or HUFs must deduct TDS if their rent payment exceeds ₹50,000 per month under Section 194IB, with a 2% TDS rate.
The TDS rate varies depending on the type of rented asset: 2% for plant and machinery and 10% for land, buildings, or furniture.
Rent paid to NRIs is subject to TDS under Section 195 at 30% plus surcharge/cess, unless reduced by a Double Taxation Avoidance Agreement (DTAA).
Failure to deduct or deposit TDS on time can lead to penalties, including interest rates of 1% per month for late deduction and 1.5% for late deposit.

What is Section 194I- TDS on Rent?

As per section 194I, any person (not being an individual or HUF) paying rent to a resident person is liable for tax deduction at source on rent at the rate of 10%, if the annual rent exceeds ₹6 lakhs.

Earlier, this TDS rent limit for deduction of tax was ₹2.4 lakh with effect from the financial year 2019-2020. However, after Budget 2025, the annual limit for TDS deduction under Section 194-I has increased to ₹6 lakh.

What is “Rent” as per the Income Tax Act? Many people often consider only the rent of a house when they think about the TDS deduction. However, there is more to the definition of rent when it comes to the Income Tax Act.

Section 194-I gives an elaborate definition of rent as a payment for the following things:
1. A land
2. Any building, whether residential or commercial
3. Machinery
4. Furniture
5. Equipment such as computer systems, networks
6. Plant for an industrial or manufacturing facility

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Objectives and Importance of Section 194I

Section 194I was introduced by the Finance Act, 1994, to ensure tax compliance on rental income by mandating the deduction of tax at source on payments made for rent. This provision helps the government capture rental income, which has been increasingly recognised as a significant source of income for individuals, Hindu Undivided Families (HUFs), and other property investors.

The importance of Section 194I lies in its role in regulating and ensuring tax collection on rental income, a major source of income for many property owners in India. With rising property investments, rental income has become a key financial component. By incorporating TDS on rent payments, the government aims to maintain a steady flow of tax revenues while also aligning with global practices, where rental income is commonly subject to tax deduction at source. Thus, Section 194I facilitates easier tracking of rent payments while also ensuring greater tax transparency and compliance.

Conditions for TDS on Rent: The following conditions must be met to ensure that TDS on rent is deducted correctly and as per the Income Tax Act.
1. To ensure the smooth deduction of TDS on rental income, the payee must provide the payer with their PAN number. If the PAN is not furnished, the TDS rate increases to 20% under Section 206AA, which is higher than the regular rates.
2. As of FY 2025–26, considering Budget 2025, the threshold limit for TDS on rent is increased to ₹6 lakh annually for persons other than individuals or HUFs, and ₹50,000 per month under Section 194IB for individuals or HUFs (if applicable).
3. TDS on rent is deducted at base rates only; Health & Education Cess does not apply.
Indirect Rent Payments Under Section 194I: Along with the TDS on house rent, there are certain indirect rent payments as well that come under Section 194I. It includes:
1. Official meeting payments made to hotels
2. Payment for buying a cold storage facility for perishable goods
3. Rent on the building and furniture
4. Service charges paid to various business centres
5. Rent on the factory building is offered to a tenant
6. Advance Rent and Its Tax Implications

Advance Rent and Its Tax Implications

Advance rent payments to landlords are subject to TDS deduction, with a few key exceptions:

If the advance rent spans across financial years, TDS is adjusted based on the total rent paid, as reflected in Form 16
When a property is sold or transferred, the TDS credit is not automatically transferred to the new owner until the transfer is completed
If the rent agreement is cancelled after the advance payment and TDS deduction, the tenant must be refunded, and the cancellation must be reported in the landlord’s ITR
For non-salary payments, a TDS certificate (Form 16A) must be issued quarterly
These provisions ensure that TDS on advance rent is calculated and adjusted appropriately under various circumstances

Who Should Deduct TDS on Rent Under Section 194I?

Under Section 194I, any person or entity, except for an individual or Hindu Undivided Family (HUF), who pays a rent exceeding ₹6 lakh in a financial year to a landlord, is responsible for deducting TDS on the rent.

However, a key amendment introduced in Budget 2017 expanded this requirement. Now, for FY 2025 - 26, individuals or HUFs who pay monthly rent exceeding ₹50,000 are also required to deduct TDS on the rent under Section 194IB. This change, effective from 1st October 2024, applies a TDS rate of 2% on rent payments made by individuals or HUFs, ensuring broader compliance for smaller landlords as well.

Who is Liable to Deduct TDS u/s 194I?

After the budget of the year 2017, every taxpayer is expected to deduct TDS on eligible rent payments. The limits of TDS-eligible payments differ for different taxpayers. Some of the common ones include:

Other than Individual & HUF: Any person, other than an individual or HUF, who has paid or is likely to pay the rent to a resident Indian should deduct TDS for FY 2025 - 26. The maximum TDS-free amount is ₹6 lakh under section 194I.
Individual & HUF Taxpayers: In case the monthly rent exceeds ₹50,000, even the individual and HUF tenants should deduct TDS under section 194IB. TDS rate on rent in this case will be 2% of the rent paid.

Coverage of Section 194I

The table below clearly highlights scenarios where TDS on rent applies and where it does not

	Coverage Under Section 194I	Not Covered Under Section 194I
Category of Tenant/Payer	Any person making rent payment	Non-tenants or non-rental payers
When the rent payer is an Individual/HUF	Individual/HUF whose sales, turnover, or gross receipts are more than the limit mentioned under section 44AB (a) or section 44AB (b)	Other Individual/HUF
Rent Payment	Rent paid to a Resident Indian	Rent paid to a non-resident person who is covered under section 194-I

What Rent Payment is Covered under Section 194I?

As per Section 194I, annual rent payments above ₹6 lakh (from FY 2025–26 onwards) are liable for TDS.

Here are all those types of payment on which the TDS on rent limit payment is charged:

Rental Income from Factory Building: If you let out a factory building, you can receive the rent as income from property or business income. In the case of business income, you will pay the advance tax on this rental income. However, your rent receipts will be subject to TDS under Section 194I in both cases.
Rent Includes Service Charges: If you are the owner of a business centre, then the service charges that you receive shall be included in the rent. Hence, these will also be treated as rent and subject to tax deduction.
Both Building & Furniture are Rented: If the building and furniture are rented out by two different owners, the TDS shall be deducted only from the building rent.
Charges Regarding Cold Storage Facility: If you provide cold storage facilities, your unit shall be treated like a plant, and TDS shall not be deducted as per the building rent. This condition will not apply to buildings that have been rented out to a cold storage operator to render the services.
Hall Rent Paid by an Association: If an association has rented out your property or hall, the TDS will apply if the rental value exceeds ₹6 lakhs for the financial year. The limit was ₹2.4 lakhs before Budget 2025.
Payments to Hotels for Holding Seminars, including Lunch: As a banquet hall or hotel used for seminars and lunch, the charge is usually for catering/meals only. In such a case, the 194I TDS rate will not apply. Instead, section 194C for TDS on contractual payments will be applicable.

TDS on Rent Paid to NRI

When rent is paid to a Non-Resident Indian (NRI), the TDS must be deducted at a rate of 31.2%% Unlike rent paid to residents, there is no TDS on rent limit paid to NRIs, meaning TDS is applicable regardless of the rent amount. However, if the NRI's total income in India is below the basic exemption limit, they may apply for a lower or nil TDS deduction certificate from the tax authorities. This allows for reduced or waived TDS, depending on their specific tax situation.

Must read: Tax Implications for NRIs

TDS Deduction Rates and Exceptions

The Government of India has offered relief at the 1941 TDS rate. Keep scrolling through to know the details:

TDS Deduction Rates: TDS is deducted when the payer credits "income by way of rent" to the landlord's account. It's important to note that if rent is paid through cash, cheque, or draft, TDS is deducted at the time of payment.

Below are the TDS deduction rates:
1. TDS rate on rent paid for plant and machinery is to be charged at 2%
2. TDS on rent paid for land, building, furniture, or fittings is deducted at 10% when the landlord is a resident, and at 30% plus applicable surcharge and cess when the landlord is a Non‑Resident Indian (NRI), subject to relief under a Double Taxation Avoidance Agreement (DTAA)

Note: This benefit of the revised rates is applicable only if you are an Indian resident.

TDS Exceptions: There are certain conditions where TDS is not deductible u/s 194I. These include:
1. The annual rent amount does not exceed ₹6 lakhs
2. Rent is made to the government and entities whose income is exempt from income tax under clauses (20) and (20A) of Sec.10
3. If the tenant is an individual/HUF not liable to tax audit (profession ≤ ₹50 lakh or business turnover ≤ ₹1 crore), Section 194I does not apply. Section 194IB applies instead.
4. The film exhibition will be shared between the film exhibitor, who owns the theatre, and the film distributor
5. If the rented premise is owned by the government, a statutory, or a local authority, the person making the payment is not required to deduct TDS from the rent

Did You Know?

To file TDS, the tenant has to fill out the 26QC Form

Source: India Today

How Can the TDS Calculator Help Calculate TDS on Rent?

To make TDS calculations clearer, here’s a quick example involving monthly rent.

Mahesh pays a monthly rent of ₹40,000 to his landlord. Since the rent does not exceed ₹50,000 per month, Mahesh is not required to deduct TDS under Section 194IB. However, If the rent were ₹60,000 per month, Mahesh would be liable to deduct TDS under Section 194IB.

Calculation (assuming rent = ₹60,000 per month):

Annual rent = ₹60,000 × 12 = ₹7,20,000
Applicable TDS rate = 2% (effective Oct 1, 2024, reduced from 5%)
TDS amount = ₹7,20,000 × 2% = ₹14,400

Deduction Timing:

Mahesh will deduct this ₹14,400 once in the financial year, at the time of paying rent for March (last month of the FY) or the last month of tenancy, whichever is earlier.

With this new revision, you too will be able to save money during the crisis. In addition to the government’s relief on TDS, you can also look for other tax-saving instruments that can help you save your money legally.

Effect of TDS on Tenant & Owner:

TDS deduction on rent payments simply reflects on the owner's ITR, and a deduction on total tax liability follows. So, TDS deducted by the tenant reduces your overall income tax liability.

As a tenant, you need to be careful with the deducted money and ensure that you can deposit this money into the revenue department. This deduction does not add to your taxable income, so there is no change in your usual tax liability.

Tax Saving Options:

TDS deduction doesn’t affect your tax liability. So, you will still need traditional modes of saving taxes. With proper tax planning, you can also reduce the burden of taxes while maximising savings. There are plenty of tax-saving instruments that ensure liquidity and better returns.

Here are some options for tax savings under the Income Tax Act:

Section 80C: It is by far the most popular section to save tax and has plenty of investment options to use. The section offers to reduce your taxable income by up to ₹1.5 lakh. Some of the most useful tax-saving instruments include:
Unit Linked Insurance Plans: Great for long-term tax-free wealth creation, providing safety to your child’s education goals, and boosting your retirement corpus
Public Provident Fund (PPF) & Sukanya Samriddhi Yojana (SSY): One of the safest long-term investment options
National Pension Scheme (NPS): Geared for retirement goals, offers equity exposure and dynamic asset allocation. But only works for retirement, as the lock-in period ends only when you are 60.
Equity Linked Savings Scheme (ELSS): Pure equity mutual funds with a 3-year lock-in and tax exemption.
Section 24: Interest paid on a home loan up to ₹200,000. It helps reduce your tax on house property. So, this is an important section if you are the owner of the let-out property.
Section 80E: Section 80E allows individuals to claim a deduction on the interest paid toward an education loan. The deduction covers 100% of the interest amount with no upper limit, though it applies only to the interest portion and not the principal.
Section 80G: As per this section, you are eligible for a tax deduction on the amounts given as donations to social organisations and NGOs

Due Date For Filing TDS on Rent Return

TDS payments are due by the 7th day of the following month. However, TDS returns are submitted quarterly, with the final filing date being the last day of the month after the quarter ends. Here are the due dates for depositing TDS for the financial year 2025–26, as shown in the table below.

Quarter Ending	Month of Deduction	TDS Payment Last Day	TDS Return Due Date
30th June 2025	April 2025	7th May 2025	31st July 2025
	May 2025	7th June 2025
	June 2025	7th July 2025
30th September 2025	July 2025	7th August 2025	31st October 2025
	August 2025	7th September 2025
	September 2025	7th October 2025
31st December 2025	October 2025	7th November 2025	31st January 2026
	November 2025	7th December 2025
	December 2025	7th January 2026
31st March 2026	January 2026	7th February 2026	31st May 2026
	February 2026	7th March 2026
	March 2026	7th April 2026 (Govt deductors) / 30th April 2026 (Other deductors)

Key Timelines for TDS Deductions

Given below are the timelines for deduction of TDS on rent payment u/s 194I

Case	The Time Limit for Deduction of TDS u/s 194I	Income Tax Challan Required
If the payment is done by or on behalf of the Government	The same day (without any challan)	No
If the payment is made by anyone except the Government	On or before 7 days from the end of the month of TDS deduction	Yes
If the TDS amount is credited or paid in March	On or before April 30	Yes
Any other case	On or before 7 days from the end of the month of TDS deduction	Yes

Consequences of Non-Deduction/Non-Payment of TDS

TDS deduction from eligible payments and timely deposit are legal requirements as per Indian tax laws. Non-deduction of TDS or non-payment of TDS can lead to the following consequences:

A taxpayer who has to deduct TDS (deductor) shall be liable to pay the interest at the rate of 1% per month, from the date when the tax deduction was to be done till the date of the late deduction of TDS
In case the tax deductor has deducted the TDS but not deposited the same to the government, s/he shall be liable to pay the interest at 1.5% per month from the date when s/he had deducted TDS to the date of late deposit of the TDS to the government.
In addition, a penalty equal to the amount of non-deduction of TDS /non-payment of TDS shall be imposed on the tax deductor

Important Points Related to Rent Income Covered Under Section 194I

Here are some important instructions regarding the deduction of TDS on Rent limit under section 194I:

The PAN number of the payee is required for the deduction of TDS on rent under Section 194I. In case the landlord or the person who receives rent on his behalf fails to provide the PAN number, then the TDS shall be deducted at the rate of 20%.

In case the rent received exceeds ₹1 crore and a foreign company is also involved, a surcharge shall be levied on TDS on rent under section 194I.

TDS on rent shall be exempt if the payee is a political party/charitable trust.
TDS on Rent for Individuals Not Subject to Tax Audit

For individuals or Hindu Undivided Families (HUFs) who are not required to undergo a tax audit, different provisions apply regarding TDS on rent:

Section 194I: This applies when an individual or HUF pays rent exceeding ₹6 lakh per annum for plant and machinery (at a rate of 2% TDS) or for land, building, or furniture (at a rate of 10%). However, this provision only applies if the individual or HUF was subject to a tax audit in the previous financial year.
Section 194IB: This section applies to individuals or HUFs not subject to a tax audit. TDS is deducted at a rate of 2% on rent paid for land, building, or both, provided the monthly rent exceeds ₹50,000. This provision simplifies TDS obligations for smaller rent payments made by individuals or HUFs without requiring a tax audit.

TDS Payment Due Dates and Compliance Guidelines

Timely payment and compliance with TDS (Tax Deducted at Source) regulations are crucial to avoid penalties and interest. Here's an overview of TDS payment due dates and key compliance guidelines:

Due Dates for TDS Payment:

For government entities, TDS must be deposited on the same day the tax is deducted
For non-government entities, the due date for TDS payment is typically the 7th of the following month. If the payment is made in March, the due date is extended to 30th April

Final Thoughts

Section 194I serves as a cornerstone in understanding the taxation framework governing rent payments. Understanding the intricacies of Tax Deduction at Source (TDS) on rental income is crucial for both landlords and tenants alike. It's imperative to grasp the 194I limit TDS rate, deposit deadlines, and potential repercussions for non-compliance.

Glossary

Unit Linked Insurance Plan: A market-linked insurance plan that offers life cover and investment in one product
PPF: A long-term government savings scheme that offers tax benefits and guaranteed returns
NPS: A retirement savings plans that helps you build a pension through market-linked investments
ITR: A form used to report income, claim deductions, and calculate your yearly tax liability
Cess: An additional tax charged for specific government needs, collected over existing taxes

FAQs

No, service tax does not form a part of the income for the owner of the property. Hence, TDS on rent payment shall be deducted under Section 194I without including the service tax.

No, if you have paid rent to government agencies and entities, you need not apply TDS on the rent payment. However, eligible rent payments to private owners must have a TDS application.

If the monthly rent is more than ₹2 lakhs, yes, you should apply TDS to the payment. If the annual rent payment is ₹2 lakh, TDS will apply only if the amount exceeds ₹6 lakhs as per section 194I of the Income Tax Act.

No, service tax does not form part of the income of the owner of the property. Thus, you should apply TDS only on the land or building rent as per section 194I without including the service tax.

While TDS is just one more transaction in your rental deal, saving income tax is a more compelling cause for your attention. Alongside deducting TDS on rent, prioritise tax-saving investments to strengthen your financial growth.

Section 194IA requires the buyer of immovable property over ₹50 Lakh to deduct 1% TDS when making payments to the seller. Section 194IB mandates individuals and HUFs, exempt from Section 44AB audits and not covered by Section 194I, to deduct TDS for Indian residents, TDS on rent payments above ₹50,000 monthly.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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What is TDS on Rent? Section 194I of the Income Tax Act

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What is Section 194I- TDS on Rent?

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Objectives and Importance of Section 194I

Advance Rent and Its Tax Implications

Who Should Deduct TDS on Rent Under Section 194I?

Who is Liable to Deduct TDS u/s 194I?

Coverage of Section 194I

What Rent Payment is Covered under Section 194I?

TDS on Rent Paid to NRI

TDS Deduction Rates and Exceptions

Did You Know?

How Can the TDS Calculator Help Calculate TDS on Rent?

Effect of TDS on Tenant & Owner:

Tax Saving Options:

Due Date For Filing TDS on Rent Return

Key Timelines for TDS Deductions

Consequences of Non-Deduction/Non-Payment of TDS

Important Points Related to Rent Income Covered Under Section 194I

TDS Payment Due Dates and Compliance Guidelines

Due Dates for TDS Payment:

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