Section 194-IB provides that every Individual and HUF, whose turnover or gross receipt from business or profession doesn’t exceed Rs. 1 crore in case of business and Rs. 50 lakhs in case of a profession in the immediately preceding financial year, shall deduct tax from the payment of rent for use of any land or building or both. The tax shall be deducted at the rate of 2% if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.
This document contains the provisions of the Income-tax Act, 1961, as amended by the Finance Act, 2026
Deductor
Every Individual or HUF shall be required to deduct tax at source under this provision if his gross receipts or turnover in the financial year immediately preceding the financial year, in which rent is paid or credited, does not exceed Rs. 1 crore in the case of business and Rs. 50 lakhs in case of a profession.
The tax shall be deducted under this provision even if the individual is not engaged in any business or profession and he is just earning salary or any other income.
Further, there is no requirement to apply or obtain Tax Deduction or Collection Account Number (TAN) for deducting tax under this section. Hence, a deductor can use his PAN in place of TAN.
Rent means any payment under any lease, sub-lease, tenancy, or any other agreement or arrangement for use of any land or building or both.
Deductee
Tax is required to be deducted only if the rent is paid or payable to a person who is resident in India. The tax shall be deducted under Section 195 if the sum is payable to a non-resident.
Time of Deduction
If tenancy subsists till the last month of the year
The tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of the financial year, whichever happens earlier.
If the property is vacated during the year
If the property is vacated during the year, tax shall be deducted at the time of payment or credit of rent to the account of the payee for the last month of tenancy, whichever happens earlier.
Rate of TDS and threshold limit
The tax shall be deducted at the rate of 2% if the amount of rent exceeds Rs. 50,000 for a month or part of the month during the financial year.
The rate shall not be further increased by Surcharge and Health & Education Cess. If the deductee does not furnish his PAN to the deductor, the tax shall be deducted at the rate of 20% under Section 206AA. In such a case, the amount of TDS cannot exceed the amount of rent payable for the last month of the year or the last month of the tenancy, as the case may be.
Exemption from TDS
No tax is required to be deducted from any sum paid or payable to the following:
a) The Government
b) The Reserve Bank of India
c) Corporation established by or under a Central Act which is, under any law for the time being in force, exempt from income tax on its income
d) Mutual Fund specified under Section 10(23D); or
Deposit of TDS
Tax deducted under this provision is required to be deposited to the credit of the Central Government through Form 26QC within 30 days from the last day of the month in which the tax was deducted.
Filing of TDS statement
The person responsible for the deduction of tax at source under this provision is required to furnish a challan-cum-statement in Form 26QC electronically.
TDS Certificate
The deductor shall issue a TDS certificate to the assessee in Form No. 16C within 15 days from the due date of furnishing of the TDS statement.
Consequences for failure to deduct or deposit tax
Where any person responsible for deducting tax at source fails to deduct tax or after deducting fails to deposit the same, he shall be treated as assessee-in-default. In that case, interest under section 201 will be applicable.
If the deductor fails to deduct TDS, interest at the rate of 1% per month or part of the month shall be applicable, till such failure continues. Interest shall be calculated from the date when such tax was required to be deducted till the date such tax is actually deducted.
Further, if the deductor after having deducted the tax, fails to deposit the same to the credit of the Central Government, interest at the rate of 1.5% per month or part thereof shall be applicable till such failure continues. The interest computation shall commence from the date on which the tax was deducted and end with the date when such tax was deposited to the government.
Penalty and Prosecution
Failure to comply with the provisions of deduction of tax at source under this provision may result in penalties and prosecution as per the following provisions:
(a) If a person fails to deduct tax at source, he shall be liable for payment of penalty under Section 271C ;
(b) If a person deducts tax but fails to deposit the same to the credit of the Central Government, he shall be liable for the penalty under Section 221 and prosecution under Section 276B.
However, no person shall be punishable under Section 276B if he proves that there was reasonable cause for the failure. Further, a person can also file an application for compounding of offence.
Consequences for failure to furnish TDS Statement
Where any person fails to furnish a TDS statement, section 234E shall be applicable, wherein the deductor is liable to pay fees at the rate of Rs. 200 per day during such default continues. However, such fees should not exceed the amount of TDS.
Moreover, he shall be liable for penalties under sections 271H of Rs. 10,000 which can be extended to Rs. 100,000, and 272A of Rs. 500 for every day during which failure continues.
Consequences for failure to issue TDS Certificates
Where any person, responsible for issuing TDS Certificates, fails to issue such certificates, a penalty under section 272A shall be applicable of Rs. 500 for every day during which failure continues.
MCQs on TDS from sum paid to buy an immovable property
Q1. The tax under section 194-IB shall be deducted if the rent paid or payable exceeds ________ per month or part of the month.
(a) Rs. 50,000
(b) Rs. 40,000
(c) Rs. 20,000
(d) Rs. 15,000
Correct answer – (a)
Explanation: The tax under section 194-IB shall be deducted if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.
Q2. What is the tax rate for the deduction of tax under section 194-IB?
(a) 2%
(b) 10%
(c) 1%
(d) 0.1%
Correct answer – (a)
Explanation: The tax shall be deducted at the rate of 2% under section 194-IB if the rent paid or payable exceeds Rs. 50,000 per month or part of the month.
Q3. TAN is not required for the tax deduction under section 194-IB.
(a) True
(b) False
Correct answer – (a)
Explanation: There is no requirement to apply or obtain a Tax Deduction or Collection Account Number (TAN) for deducting tax under section 194-IB. Hence, a deductor can use his PAN in place of TAN.
Q4. Which of the following TDS return is required to be furnished if tax is deducted under section 194-IB?
(a) 26Q
(b) 26QB
(c) 27Q
(d) 26QC
Correct answer – (d)
Explanation: The person responsible for the deduction of tax at source under section 194-IB is required to furnish a challan-cum-statement in Form 26QC electronically.
Q5. Tax deducted under section 194-IB is required to be deposited to the credit of the Central Government through Form 26QC within ________ from the last day of the month in which the tax was deducted.
(a) 15 days
(b) 30 days
(c) 7 days
(d) 10 days
Correct answer – (b)
Explanation: Tax deducted under section 194-IB is required to be deposited to the credit of the Central Government through Form 26QC within 30 days from the last day of the month in which the tax was deducted.
Q6. Which form is required to be issued as a TDS certificate if tax is deducted under section 194-IB?
(a) 16A
(b) 16B
(c) 16C
(d) 16D
Correct answer – (c)
Explanation: The deductor shall issue a TDS certificate to the assessee in Form No. 16C within 15 days from the due date of furnishing of the TDS statement.
TDS on Rent – Section 393(1) (Section 194I(a) & (b))
The provisions relating to TDS on rent have been restructured under the Income-tax Act, 2025. The earlier Section 194I of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 2(ii).D(a) & 2(ii).D(b)], effective from 1st April, 2026.
This restructuring introduces a table-based classification distinguishing between rent on plant & machinery and rent on other assets. The scope, applicability, and compliance requirements remain aligned with the earlier provisions.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(1)
- Table Reference: Table: Sl. No. 2(ii).D(a) & 2(ii).D(b)
- Nature of Payment: Rent (Plant & Machinery / Land, Building & Furniture)
- Earlier Section (IT Act 1961): Section 194I (a) & (b)
- Return Form: 26Q
- Code (for return filing):
- 1008 – Rent on machinery etc.
- 1009 – Rent other than machinery etc.
Applicability of TDS on Rent
Any person responsible for paying rent to a resident is required to deduct tax at source, except individuals and HUFs not subject to tax audit.
The provision applies to payments made under lease, sub-lease, tenancy, or similar arrangements for use of assets.
Rent includes payments for:
- Plant and machinery
- Land and building
- Furniture and fittings
Who is Required to Deduct TDS?
- Any person responsible for paying rent to a resident
- Individuals and HUFs covered under tax audit
Individuals and HUFs not liable for tax audit are generally not required to deduct TDS under this section.
Time of Deduction
TDS is required to be deducted at the earlier of:
- At the time of credit of rent to the account of the payee
- At the time of payment by cash, cheque, draft, or any other mode
Rate of TDS
The rates for TDS under this section vary based on the type of asset:
| Section | Type of Rental Payment | TDS Rate |
|---|---|---|
| 194I(a) | Rent for plant, machinery, or equipment | 2% |
| 194I(b) | Rent for land, buildings, furniture, or fittings | 10% |
For payments to non-resident Indians (NRIs), the rate is 30%, with an additional surcharge and cess, irrespective of the amount. In cases where PAN is not furnished, tax shall be deducted at the higher of:
- The applicable rate specified above, or
- 20% as per applicable provisions
Threshold Limit
TDS is required to be deducted only if rent exceeds ₹50,000 per month.
Nature of Payments Covered
The following payments are treated as rent under this provision:
- Payments under lease, sub-lease or tenancy agreements
- Payments for use of land, buildings, machinery, plant, furniture or fittings
- Advance rent (unless refundable)
Refundable security deposits are not subject to TDS.
Key Coverage Points
- Rent from factory buildings is subject to TDS even if treated as business income by the recipient
- Service charges for business centres are treated as rent
- Hall rentals are subject to TDS where threshold is exceeded
- Cold storage payments are not treated as rent and fall under a different provision
Exceptions
- Rent does not exceed ₹50,000 per month
- Payment made by individuals or HUFs not liable for tax audit (except specific cases)
- Certain revenue-sharing arrangements not classified as rent
TDS Payment Deadlines
- Government payments: Same day (book entry)
- Other payments: On or before the 7th of the following month
- For March: On or before 30th April
Consequences of Non-Compliance
- Non-deduction of TDS: Interest at 1% per month
- Non-deposit of TDS: Interest at 1.5% per month
Purpose of the Provision
Section 194I was introduced to bring rental income within the tax net and ensure tax collection at the source of payment.
Illustration
- Monthly Rent: ₹60,000
- Annual Rent: ₹7,20,000
Since the rent exceeds the threshold, TDS is applicable.
- Applicable Rate: 10% (rent of building)
- Monthly TDS: ₹6,000
