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Last updated on: July 29, 2025
Section 194I of the Income Tax Act, 1961 mandates that any individual or entity (excluding those covered under section 44AB for personal use) paying rent exceeding ₹2,40,000 per year must deduct Tax Deducted at Source (TDS) on such payments. TDS is to be deducted at the rate of 2% for the use of plant and machinery and 10% for land, building (including factory buildings), furniture, or fittings. The liability to deduct arises at the time of credit or payment to the payee, whichever is earlier. The deducted tax must be deposited with the government and appropriate TDS returns must be filed. Failure to comply may attract interest, penalties, and disallowance of rent expense. Section 194I applies to both individuals and non-individuals, except certain individuals/HUFs not under tax audit provisions.
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Read BioThe Indian Income Tax Act has several provisions where tax is deducted at source (TDS), and Section 194I is among the most relevant for individuals and businesses paying rent. With updates in the rules, TDS on rent under section 194I in 2025 continues to impact many taxpayers. This article gives a detailed guide to section 194I TDS on rent, covering its applicability, latest rates, payment thresholds, key features, compliance process, and practical tips for landlords and tenants for smart tax planning.
Section 194I deals with Deduction of Tax at Source from rent payments. The aim is to ensure that tax on rental income is deducted at the time of payment itself, plugging possible leakages in collection. The section applies to anyone except individuals and Hindu Undivided Families (HUFs) not subjected to a tax audit, who are responsible for paying any rent exceeding a certain threshold within a financial year to a Indian resident.
TDS under section 194I must be deducted by:
If you paid more than Rs 2 40 000 as rent for land, building, machinery, plant, equipment or furniture in a financial year, Section 194I applies. Note: Rent paid to a non-resident is covered under different section (194IB or 195).
Many first time property tenants forget that TDS on rent is their responsibility, not the landlord’s. Failure to comply can lead to interest and penalties.
The word “Rent” has a broad meaning under section 194I. It includes payments for use of:
It does not matter whether the asset is owned by the payee or taken on lease, sub lease or any other arrangement.
TDS on rent rates differ by asset type. As of the financial year 2024-25:
| Nature of Asset | TDS Rate (%) |
|---|---|
| Plant & Machinery | 2 |
| Land/Building/Furniture/Equipment | 10 |
If the landlord does not provide a valid PAN, TDS must be deducted at 20 percent.
TDS is not required if the total rent paid or credited does not exceed Rs 2 40 000 in a financial year per landlord.
Suppose a business rents an office at Rs 30,000 per month. The annual rent is Rs 3,60,000. Here, TDS must be deducted since it exceeds Rs 2,40,000 yearly.
Deductors must:
From our company’s experience, setting a monthly reminder before rent payment helps ensure TDS is not missed. Many accounting software solutions in 2025 directly integrate TDS calculation and challan payment, improving accuracy.
Q: If rent is paid in advance, should TDS be deducted at once?
Yes, TDS should be deducted at the time of payment or credit, whichever is earlier, including for advance rent.
Section 194I TDS on rent offers several notable features:
Expert Insight:
According to chartered accountants, confusion sometimes arises between rent and contractual or service payments. Clarity in agreement drafts matters significantly for correct TDS deduction.
Let us compare how 194I stands against other similar provisions:
| Basis | Section 194I | Section 194IB | Section 194IC |
|---|---|---|---|
| Who deducts | Businesses, audited Ind/HUF | Individual/HUF not in audit | Co-developer/share |
| Applicable limit | Rs 2,40,000/year | Rs 50,000/month | Project share |
| Asset type | All types | Residential property only | Joint development |
| TDS Rate | 2% or 10% | 5% | 10% |
| TDS Compliance | Monthly usually | Once in a year | Per agreement |
Q: How can I know which TDS section applies to my rent?
Check if you are an audited business or not, the annual rent, and the type of property. For most company or business rentals, Section 194I covers all.
Online marketplaces are now helping small and mid-sized companies compare cloud accounting tools that offer inbuilt TDS management and landlord dashboards, which saves time and cuts manual errors.
Did you know?
From 2024, some online rent payment platforms started auto-generating TDS certificates, reducing tenant paperwork.
Ravi, a startup owner in Bengaluru, pays Rs 3 lakh per year for co-working office rent (excluding GST). After consulting his CA, he deducts Rs 30,000 (10 percent) yearly as TDS and pays Rs 2,70,000 to landlord, depositing the TDS to the government. At year-end, the landlord gets a 16A certificate and claims Rs 30,000 as TDS credit while filing taxes.
Q: If rent includes GST, should TDS be deducted on total rent or only the base rent?
According to the latest CBDT circular, TDS is to be deducted only on rent excluding GST amount shown separately in the invoice.
Yes, you need not deduct TDS if:
Some Real Estate Investment Trusts (REITs) also get exemption when notified.
Expert Insight:
CAs expect further automation in TDS filings by 2025, with direct matching to rental agreements uploaded online.
If property has more than one landlord, threshold limit of Rs 2,40,000 applies to each co-owner. TDS rate is calculated separately and paid accordingly.
Did you know?
In 2025, automated notifications by the CPC TDS portal ensure most companies do not miss deadlines for payment or return filing.
What is TDS on Rent under Section 194I?
It is tax deducted at source by tenants, such as businesses and certain individuals, when rent paid exceeds Rs 2,40,000 in a year.
Who is responsible for deducting TDS on rent?
Primarily companies, firms, and individuals or HUFs whose turnover exceeds tax audit limits must deduct TDS on rent.
On what amount should TDS be deducted – including or excluding GST?
TDS should be deducted on rent excluding GST if GST is separately shown in the invoice.
What is the due date for depositing TDS on rent?
TDS must be deposited within 7 days from the end of the month in which rent is credited or paid.
What happens if TDS is not deducted or deposited?
Interest, penalty, and possible disallowance of rent as business expense.
Do I need to issue a TDS certificate for rent deduction?
Yes, Form 16A must be given to landlord within 15 days after filing the quarterly return.
Can I get refund if I accidentally deposit extra TDS?
Yes, claim refund while filing your regular IT return.
Is there any TDS on security deposit for rent?
No TDS on pure security deposit unless adjusted as rent.
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Written by Prem Anand, a content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors.
Prem Anand is a seasoned content writer with over 10+ years of experience in the Banking, Financial Services, and Insurance sectors. He has a strong command of industry-specific language and compliance regulations. He specializes in writing insightful blog posts, detailed articles, and content that educates and engages the Indian audience.
The content is prepared by thoroughly researching multiple trustworthy sources such as official websites, financial portals, customer reviews, policy documents and IRDAI guidelines. The goal is to bring accurate and reader-friendly insights.
This content is created to help readers make informed decisions. It aims to simplify complex insurance and finance topics so that you can understand your options clearly and take the right steps with confidence. Every article is written keeping transparency, clarity, and trust in mind.
Based on Google's Helpful Content System, this article emphasizes user value, transparency, and accuracy. It incorporates principles of E-E-A-T (Experience, Expertise, Authoritativeness, Trustworthiness).
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