Tax Deducted at Source (TDS) is a mechanism where tax is collected at the point of certain payments and deposited with the government on the recipient's behalf. Section 194I of the Income-tax Act governs TDS on rent.
This guide sets out the TDS rate under Section 194I, the threshold that triggers deduction, who must deduct, and the deposit and return-filing compliance that follows.
What is Section 194I?
Section 194I applies to TDS on rent paid for land, building, plant, machinery or equipment.
Rate, threshold and who deducts
| Nature of payment | Rent |
|---|---|
| TDS rate | 10% for land/building/furniture; 2% for plant, machinery and equipment |
| Threshold | Annual rent above the notified limit (₹2,40,000; the threshold has been revised upward — verify the current-year figure) |
| Who deducts (deductor) | Tenant liable to audit / specified payers |
| Whose income (deductee) | Landlord / lessor |
| Time of deduction | At credit or payment, whichever is earlier |
Key points
- Individuals/HUFs not liable to audit use Section 194IB instead.
Compliance for the deductor
- Deduct at the right time. Deduct TDS on rent at credit or payment, whichever is earlier.
- Deposit to the government. Pay the deducted tax by the 7th of the following month (special dates apply for March and for Form 26QB).
- File the TDS return. Report the deduction in the quarterly TDS return (Form 24Q/26Q/27Q as applicable) on the TRACES/e-filing system.
- Issue the TDS certificate. Give the deductee Form 16/16A so they can claim credit in their return.
How the deductee claims credit
TDS deducted under Section 194I appears in the deductee's Form 26AS and Annual Information Statement (AIS). It is adjusted against the final tax liability when the deductee files their income tax return, and any excess is refunded.
Frequently asked questions
Is GST included in the rent for TDS?
TDS is deducted on the rent excluding GST, provided GST is shown separately in the invoice.
What happens if TDS is not deducted?
The payer can face disallowance of the expense, interest at 1%–1.5% per month, and penalties. It is important to deduct and deposit on time.
By when must TDS be deposited?
Generally by the 7th of the month following deduction (30 April for amounts deducted in March), with separate rules for property-related challans.