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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. The changes in the rules still affect numerous taxpayers as far as TDS on rent under section 194I in 2025 is concerned. This article has provided detailed overview of section 194I TDS on rent, its applicability, latest rates, payment thresholds, important salient features, compliance procedure and practical solutions of how landlords and tenants can plan their taxes in a smart way.
The Section 194I concerns Deduction of Tax at Source on rent paid. The intention is to make sure that tax on rental income is deducted upon the payment itself closing off potential collection leakages. 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 needs to be deducted by:
This would apply to any other paying of rents
Section 194I applies when you paid in excess of Rs 2 40 000 rent as land, building, machinery, plant, equipment or furniture during a financial year.
Note: Rent paid to a non-resident is covered under different section (194IB or 195).
It is a common mistake on the part of first time tenants of properties, who fail to remember that paying of TDS on rent is the responsibility of the former rather than the latter. They can generate an interest and penalty on failure to comply.
The word “Rent” has a broad meaning under section 194I. It comprises remuneration in respect of:
Whether the payee owns the asset or leases, sub lets or otherwise does not matter.
TDS calculated on the rent rates varies according to the asset. At 2024-25 Financial Year:
| Nature of Asset | TDS Rate (%) |
|---|---|
| Plant and Mechanically | 2 |
| Land/ Building/ Furniture / Equipment | 10 |
When the landlord fails to submit an acceptable PAN, then TDS would have to be suffered at 20 percent.
In case of total rent paid or credited to landlord in a financial year, TDS is not required in case it is not more than Rs 2 40 000 in a financial year.
To illustrate the case, it is necessary to make an example.
Also, assume that there is a business that occupies an office rented using Rs 30,000 every month. The rent is Rs 3,60, 000 annually. In this, TDS has to be deducted because it is more than Rs 2,40 000 per annum.
Deductors must:
In the experience of our company, a monthly reminder should be set prior to the month of rent payment so as to help one not to miss TDS. TDS calculations and payment of challans is built in many accounting programs in 2025 making it more accurate.
Q: Is TDS supposed to be deducted immediately once one has paid the rent?
Yes, deduction of TDS would be at the time of payment or credit, whichever is the earlier including in the case of advance rent.
A number of highlights of Section 194I TDS on rent are as follows:
Pros
Cons
Chartered accountants argue that there is a misunderstanding at times between rent and payment in a contract or service. The draft of the agreement needs to be clear in case TDS is deducted correctly.
Comparisons may be made between 194I and other provisions of that sort:
| Basis | Section 194I | Section 194IB | Section 194IC |
|---|---|---|---|
| Who deducts | Businesses, audited Ind/HUF | Individual/HUF not in audit | Co-developer/share |
| Limitable amount | Rs 2,40,000/annum | Rs 50,000/ month | Share of project |
| Type of assets | All types | only residential property | Joint development |
| TDS Rate | 2% or 10% | 5% | 10% |
| TDS Compliance | Every month generally | One in a year | According to the agreement |
Q: How do I know which TDS section to use only to have my rent?
Enquire whether you are an audited and/or non-audited business, your annual rent and the kind of property. In the majority of the situations of renting the company or business, everything is held under Section 194I.
Small and middle sized businesses are now finding online shopping markets that compare the available cloud accounting software tools that contain inbuilt TDS management and landlord dashboards saving time and avoid human errors.
Since 2024, a few online sites used to pay rent automatically created TDS certificates, lessening paperwork on the part of tenants.
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. Landlord receives a 16A certificate at the end of the year, on which he/she claims a tax credit of 30, 000 as TDS.
Q: Does TDS have to be withheld on the total rent or the base rent in case rent is inclusive of GST?
The regulatory framework to TDS deduction is as per the latest CBDT circular that rent should be treated as TDS deduction only after subtracting the GST amount at a separate box in the invoice.
Yes, you can do that without making TDS deductions in case of:
CAs are anticipating more automation on the TDS filings by 2025 and direct matching of the same with rental agreements uploaded on the Internet.
In case, property has more than one landlord the threshold limit of Rs 2,40,000 will be applicable to each co-owner. TDS rate is treated on its own and paid that way.
With the use of automated notifications of the CPC TDS portal, most companies will not forget to pay or file returns in 2025.
Section 194I What is TDS on Rent?
Tenants, which includes businesses and some individuals, pay it and are subject to tax deducted at source, when rent paid exceeds Rs 2,40,000 annually.
Who has to calculate TDS on rent?
Rent has to be TDS deducted primarily by companies, firms, and individual or HUFs with a turnover that has exceeded their maximum limits of the tax audit.
Against what should TDS be deducted, i.e. including/excluding GST?
In case GST was separately indicated in the bill, then TDS is to be deducted on rent exclusive of GST.
When is the deposit of TDS on rent to be made?
TDS should be deposited before bill 7 days after the end of a month rent has been credited/paid.
What are the consequence when TDS is not deducted or deposited?
Interest and penalty, and rent as business expense, maybe disallowed.
Do I require to provide TDS certificate on deduction of rent?
Of course, the Form 16A should be provided to the landlord not later than 15 days after the quarterly return has been submitted.
What happens in case I make an accidental over-payment of extra TDS?
You can, you claim a refund by presenting a normal IT docket.
Does any security deposit on rent have TDS?
Particularly, no TDS on pure security deposit unless mitigated in the form of rent.
Online marketplaces provide clear features and comparisons of price that prove to be useful when comparing many TDS management software and rent payment solutions services to your business in 2025 and coming up in 2025 in India.
How could we improve this article?
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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