TDS on Rent: Section 194I Rules for Tenants & Landlords in India
If you pay rent above ₹2.4 lakh per year to a landlord, you may be legally required to deduct TDS before making the payment. Most tenants — both individuals and businesses — are unaware of this obligation. Missing it attracts interest, penalties, and disallowance of the rent expense. Here is the complete guide.
Two Sections — Two Different Rules
TDS on rent is governed by two separate sections of the Income Tax Act, depending on who the tenant is:
| Section | Applicable To | Threshold | TDS Rate |
|---|---|---|---|
| 194I | Companies, firms, LLPs, and individuals/HUFs liable for tax audit (business/professional income > ₹1 crore / ₹50 lakh) | ₹2.4 lakh per year (₹20,000/month) | 2% (plant/machinery/equipment) | 10% (land/building/furniture) |
| 194IB | Individuals and HUFs not liable for tax audit — i.e., salaried persons and small businesses paying rent | ₹50,000 per month | 2% (w.e.f. April 2025; was 5% before) |
Section 194I in Detail: For Businesses
Under Section 194I, TDS must be deducted at the time of credit or payment (whichever is earlier) on rent paid for:
- Land, building, or furniture/fittings: TDS at 10%
- Plant, machinery, or equipment: TDS at 2%
The threshold of ₹2.4 lakh applies per payee per financial year. If you have multiple premises rented from the same landlord, aggregate all rent payments to check if the threshold is crossed.
Section 194IB in Detail: For Salaried/Individual Tenants
If you are a salaried employee or individual (not required to get tax audit) and pay rent exceeding ₹50,000 per month to a landlord, you must:
- Deduct TDS at 2% of the rent in the last month of the financial year or the last month of tenancy (whichever is earlier)
- Deposit the TDS using Challan 26QC on the TIN-NSDL portal within 30 days from the end of the month in which TDS was deducted
- Issue Form 16C (rent TDS certificate) to your landlord within 15 days of filing the challan
Unlike 194I (which requires a TAN), 194IB deductions can be made using only your PAN — no TAN required.
Landlord's PAN: What If They Refuse to Share?
If the landlord does not provide PAN:
- Under Section 194I: TDS rate becomes 20% (instead of 10%) as per Section 206AA
- Under Section 194IB: TDS rate stays at 2% but deposited against the landlord's name without PAN — this may cause matching issues in the landlord's Form 26AS and create disputes
Always insist on the landlord's PAN at the time of signing the rent agreement. In practice, most landlords cooperate.
Consequences of Not Deducting TDS on Rent
| Consequence | Details |
|---|---|
| Interest on late deduction | 1% per month from date TDS was deductible to date of actual deduction |
| Interest on late deposit | 1.5% per month from date of deduction to date of deposit |
| Disallowance of rent expense | 30% of rent expenditure disallowed under Section 40(a)(ia) for businesses that fail to deduct TDS — effectively a 30% penalty on the expense claim |
| Penalty under Section 271C | Amount equal to TDS not deducted |
How to Deposit TDS and File Returns
For businesses (194I): Deposit TDS monthly by the 7th of the following month using Challan 281 (via net banking or authorised bank). File quarterly TDS returns in Form 26Q. Issue Form 16A to the landlord within 15 days of due date of filing the quarterly return.
For individuals (194IB): One-time deduction in the last month of FY. Deposit via Challan 26QC at tin.tin.nsdl.com within 30 days of end of that month. Issue Form 16C within 15 days of Challan 26QC filing. See our TDS compliance calendar for all key deadlines across the year.
HRA Exemption Link: The Tenant's Side
As a salaried tenant, the rent you pay also determines your HRA (House Rent Allowance) exemption from income tax. Even if you're required to deduct TDS under 194IB, you can still claim HRA exemption — but you'll need to provide your landlord's PAN to your employer if rent exceeds ₹1 lakh per year. See our HRA exemption guide for the calculation formula and documentation required.