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Section 194I of Income Tax Act is applicable on a landlord earning a rental income from land, building, plant & machinery, furniture and fittings, etc. The responsibility to deduct the TDS (tax deducted at source) is on the tenant under this section.

TDS on rent under Section 194I

Section 1941 was inserted in the income tax law through the Finance Act, 1994, to cover rental income under the ambit of TDS payments. TDS on rent paid by a businessman is governed by Section 194I while TDS on rent paid by an individual or HUFs falls under Section 194IB of the law.

Conditions for TDS deduction on rent

Section 194I of the Income Tax Act says the tenant must deduct 10% TDS on rent generated from any land or building if the aggregate of the rent paid or likely to be paid during a financial year exceeds Rs 2.40 lakh. The limit of Rs 2.40 lakh is applicable for each payee and not for each of the properties. In case the owner of a property has let-out more than one property to the same lessee and the annual rent of these is less than Rs 2.40 lakh for each property annually but the aggregate of the rent is likely to exceed Rs 2.40 lakh, the lessee has to deduct the tax at source.

Tax (TDS) deduction rate on rent 2024

Nature of payment	TDS on rent
Rent of plant and machinery	2%
Rent of land or building or furniture or fittings	10% (5% for Individuals and HUFs not liable for tax audit)

Who is liable to deduct TDS on rent?

The present provisions are applicable to all tax payers, including companies, firms, trusts or association of persons, etc.

However, if the payer of rent is an individual or HUF, the provisions will apply if the payer of the rent is engaged in a business or profession and the accounts were required to be audited during the preceding year, due to the turnover being in excess of the prescribed limit.

What happens if TDS is not deducted on rent?

If the TDS is not deducted, penalty interest at 1% is applicable per month till the TDS is deducted.

How is TDS on rent calculated?

Tenants are required to deduct TDS when the payment is being made to a resident landlord on rent payment exceeding Rs 2.40 lakh in a year.

If the landlord is a non-resident, the tenant has to deduct tax under the provisions of Section 195 of the Income Tax Act, without there being any threshold limit of Rs 2.40 lakh per annum.

The payment may be called by any name but the tax is required to be deducted in case the payment is for use of land, building or land and building.

Also, it is not necessary that the recipient of the rent should be the owner of the property. So, in case a lessee sublets the property taken by him on rent/lease to any other person, the sub-lessee has to deduct tax at source.

Likewise, tax is required to be deducted from payments made to hotels for providing rooms to you in case the rent is likely to exceed the limit during the year.

When is TDS deducted on rent?

The TDS is required to be deducted at the time of crediting the rent in its books of accounts even if the payment is made later. Likewise, you need to deduct the tax at the time of making an advance payment of such rent, either for the year or even in cases where the rent is paid in advance for more than one year. For payment of the TDS to the credit of the government, you need to obtain the tax deduction account number (TAN) and deposit the tax through the prescribed challan.

How to pay TDS on rent?

The tenant has to furnish information regarding the transaction online on the TIN website, http://www.tin-nsdl.com. After successfully providing details of transaction, he can either make the payment online through e-tax payment option immediately or make the payment subsequently through e-tax payment option (net-banking account) or by visiting any of the authorised bank branches. However, such bank branches will make e-payment without digitization of any challan. The bank will get the challan details from the online form filled on TIN website(www.tin-nsdl.com)

TDS deduction on rent paid by individuals and HUFs in 2024

Rent payer	TDS rate	Threshold limit
Companies, firms, trusts or association of persons, etc., and individuals or HUFs, where the payer is engaged in a business whose accounts were audited	10% of the rent.	TDS has to be deducted if the aggregate of the rent paid or likely to be paid during the year exceeds Rs 2.40 lakh
Individuals and HUFs not covered in the above section	5% of the rent.	TDS has to be deducted if the rent for each month or part of the month is more than Rs 50,000.

The payer is required to deduct tax only in the last month of the year or during the last month of tenancy in case the property is vacated during the year. However, in case the rent is paid earlier, you are required to deduct tax at the earlier moment.

So, with the new provisions, even the people who are salaried or retired and not carrying on any business or profession but are paying rent above Rs 50,000 per month, will have to deduct tax at source from such rental. This will bring those people into the tax net, who are earning rent by letting out the property to people who are not engaged in any business or profession.

Since the rent for this purpose includes any payment for use of building, this will even cover the rent paid by you to hotels for room bookings, or even to marriage halls, in case the rent for use of such premises exceeds Rs 50,000 even for one day.

TDS on rent paid to NRIs

According to Section 195 of the Income Tax Act, the tenant should deduct TDS at the rate of 30% on rent paid to an NRI landlord for property located in India. For deducting TDS on the rent, the tenant should have a TAN. If the tenant fails to deduct TDS on the rent paid to the NRI, the payer is liable to pay penalty as per the prevailing provisions.

Is TAN mandatory for TDS on rent?

Individual or HUFs need PAN to deduct and deposit TDS. Assessees other than individuals or HUFs need to have a TAN to deduct and deposit TDS.

Form for TDS payment

To pay TDS on rent, log on to www.tin-NSDL.com. On the website, you will find the link to fill Form 26QC. Fill all your details, the details pertaining to your landlord and all the details of the financial transaction. In case you are sharing the accommodation, their details must also be furnished. Similarly, if your landlord co-owns the property with someone else, their details must also be given in the form.

According to Section 194I, an individual who pays rent is subject to tax deduction at the source. One must note that TDS can be deducted when the amount of tax to be paid or received in a given fiscal year is over Rs. 180000.

Typically, HUFs and individuals are liable to pay TDS at the rate of 5% of the total rent that is collected when the rent is more than Rs. 50000. One must note that the rent that is paid out to government agencies or bodies is exempted from TDS.

Objective of TDS u/s 1941

The Finance Act, 1994 inserted Section 1941, on basis of deduction of tax from rent.
The government established the provision to cover the income by way of rent under TDS.
In other countries, such income is subject to deduction of TDS.

Importance of Section 194I

In India, a lot of people, including individuals and HUFs, buy properties for investment needs. Here the primary motive was to sell the property at an appreciated rate in the future or rent out the property for getting rent. Thus, the rent collected is one of the most important components of income for a lot of people, including individuals and HUFs in the country.

Due to this, the finance minister has considered the need to introduce Section 194I, which would have the tax deduction from the rent in the Income Tax Act. Another reason for being is that in other countries, income from renting property is already subject to TDS.

All these reasons had brought about Section 194I.

Who Has to Deduct TDS Under Section 194I?

Based on Section 194I of the Income Tax Act, a person is eligible for a TDS deduction if they will be paying their landlord a total of Rs 1.80 lakhs in rent in a financial year and have already debited that amount or are likely to do so.

Note that neither a person nor a HUF may be the subject of this sentence.

Rate of TDS Under Section 194I

TDS is deducted when the payee credits ‘income by way of rent’ to the landlord’s account. One must note that if rent is paid through cash, cheque, or draft, then TDS is deducted at the time of payment. Here is the TDS rate on rent-

TDS on rent paid on plant, machinery, or equipment is to be charged at 2%.
TDS on the rent paid on land, building, or both of it is to be charged at 10%.
TDS on the rent paid on furniture or fitting is charged at 10%.

Payments Covered Under Section 194I

Tax is deducted at varied rates for different assets such as furniture, factory, building, hotel, and more.

1) Rent from Factory Building	When a factory building is rented, the lessor or factory owner is required to pay the rent. The Lessor may occasionally receive it as property-related income.In these circumstances, the lessor will be required to pay an advance tax and return the rent income since the tax will be deducted at the source because the rent is regarded as business income.
2) Rent from Cold Storage	Cold storage facilities that hold milk, vegetables, or ice cream are regarded as plants and are not subject to building rent.
3) Two people renting from a building or piece of furniture	When the building and furnishings are rented out by two distinct people, the tax is only subtracted from the rent for the building.
4) Hall Leased to an Organization	In the event that an association hires a hall, tax is subtracted if the rent is more than Rs. 1,80,000.
5) Hotel room rental for seminars with meals	Tax is withheld at the source when hotels simply charge for food or catering and not for utilizing the facilities. At the same time, Section 194C is used for catering.
6) Tax Reduction Depending on the Rent Period	Taxes are not always withheld on a monthly basis by law. It is determined by the rental time and is subtracted accordingly. For instance, if the rent is paid annually, the tax deduction is also made annually.
7) Servicing Fees Owed to Business Centers	Rent is often regarded as the service fees paid to business centres.

One must take note that Section 194I mandates that TDS has to be deducted on the basis of the rental period and for each month. Naturally, if rent is paid yearly or quarterly, then it will also be paid out accordingly.

However, under Section 194I of ITA, there are a few cases where no tax is deducted at the source. One must become aware of those exceptions and streamline the process accordingly.

Section 194I – Exemption and Deduction at Lower Rate

Exemptions

TDS on rent is not applicable in the following cases –

When the amount to be paid or has been paid is less than Rs. 180000 in a fiscal year.
Then the rent is paid to a government agency.
When the earnings are shared by a film exhibitor and distributor who own a cinema theatre.
In case it is an individual tenant or HUF

TDS without Service Tax

Service tax is applied on TDS only when the aggregate rent from one or more sources in a given fiscal year is more than Rs.10 lakh. Ideally, service tax includes cess.

It has to be noted that service tax is calculated on the rent accrued and not on the amount of service tax that is paid.

Nil or Lower TDS Deduction

Entities can file Form 15G or 15H to avoid TDS on rent if individuals with nil tax receive rent as income.

Other than these, entities can claim TDS returns while filing ITR. To do so, the tax payee has to claim tax deducted at source as credit and must pay the difference between tax payable and the deduction that was made on rent. Also, a TDS refund can be claimed if the amount of tax deducted at the source was more than what was computed.

Tax Deducted at Source on Advance Rent

In the case of advance rent that is paid to the landlord, the payment is subject to TDS deduction. Regardless, there are a few exceptions that are factored in for TDS calculations, as discussed below–

In case the advance rent crosses over to the next financial year, the tax deducted at source will be in proportion with earnings based on Form 16 that is issued for aggregate rent paid in advance.
When an asset is sold or transferred to another individual, the tax deducted at source credit has been unavailable until the transfer has to be credited to its new owner.
In case of cancellation of rent agreement after the payment of advance rent and deduction of TDS, the balance will be refunded to tenants. Notably, the landowner has to mention such cancellation in the ITR form submitted for TDS deduction.
For payment besides salary, a TDS certificate has to be issued every quarter as form 16A.

Implications of Not Paying TDS under Section 194I of the Income Tax Act

Taxpayers who fail to pay taxes on the due date are liable to pay interest at the rate of 1%. One must note that taxpayers have to pay the interest every month from the date on which tax is to be deducted until the date it is.

On the other hand, taxpayers who have deducted but failed to deposit it to the government are required to pay interest at the rate of 1.5%. However, such an interest has to be paid from the date of tax-deductible until TDS is deposited.

What is the Time Limit of Depositing TDS?

These pointers highlight the TDS on rent limit of time for TDS deposit in different cases.

When TDS is paid either on behalf of the government or by the government

Such payment has to be made without using any challan form on the same day itself.

When TDS is paid by an entity other than the government

TDS has to be paid either on or at least a week from the end of the month when a deduction will be made.

Since there are a lot of aspects of Section 194I of the Income Tax Act, entities must make it a point to find out about them. This will help them to account for TDS on rent payment better and further allow them to streamline the process of payment and to claim refunds with more convenience.

Tag: Income Tax section 194I

TDS on Rent under Section 194I of Income Tax Act in 2024