Section 194-I: TDS on Rent - Rates, Threshold and Rules
Section 194-I of the Income-tax Act, 1961 governed tax deduction at source (TDS) from rent paid to resident persons through 31 March 2026. From 1 April 2026, the corresponding rent-withholding rules appear in Section 393(1), resident-payments table, serial number 2 of the Income-tax Act, 2025.
At a glance: TDS is generally 2% on rent for machinery, plant or equipment and 10% on rent for land, buildings, furniture or fittings where the payer is covered by the former Section 194-I category. Since 1 April 2025, the threshold has been Rs. 50,000 per month or part of a month, replacing the earlier Rs. 2,40,000 annual threshold.
1. Meaning of rent under Section 194-I
For this provision, rent includes a payment, by whatever name called, under a lease, sub-lease, tenancy or other agreement or arrangement for the use of land; a building (including a factory building); land attached to a building; machinery; plant; equipment; furniture; or fittings. The payee need not own the relevant asset. Substance of the arrangement matters, not merely the description on an invoice.
Credit to a suspense account or any other account in the payer's books is treated as credit to the payee for determining the time of deduction.
2. TDS rates and monthly threshold
| Nature of rent | TDS rate | Threshold from 1 April 2025 |
|---|---|---|
| Machinery, plant or equipment | 2% | Exceeds Rs. 50,000 for a month or part of a month |
| Land, building, factory building, related land, furniture or fittings | 10% | Exceeds Rs. 50,000 for a month or part of a month |
The threshold is tested with reference to the rent credited or paid to the particular payee for a month or part of a month. It is not the former Rs. 2,40,000 yearly aggregate test. Where TDS applies, the relevant rate generally applies to the rent amount, not only the portion above Rs. 50,000.
For payments made or credited before 1 April 2025, check the threshold applicable on that date; the earlier annual threshold was Rs. 2,40,000.
3. Who must deduct TDS?
Under the former Section 194-I, companies, firms and other persons covered by the provision deducted TDS when paying rent to a resident. An individual or Hindu undivided family (HUF) was also covered if its business or professional turnover or gross receipts in the preceding financial year exceeded the applicable tax-audit monetary limits under Section 44AB.
Other individuals and HUFs paying qualifying rent for land or buildings were generally covered by Section 194-IB, which had a separate 2% rate and compliance mechanism. Under the 2025 Act, Section 393(1), resident-payments table, serial number 2 distinguishes rent paid by a specified person from rent paid by a person other than a specified person. Identify the payer category before selecting the rate or filing code.
4. When is TDS deducted?
For payers covered by the former Section 194-I, tax was deductible at the earlier of credit to the payee's account or actual payment, including payment by electronic transfer or any other mode. The corresponding rules under the 2025 Act should be applied to the relevant 2026-27 payment or credit event.
5. Practical examples
Example A: Office rent of Rs. 75,000 per month
A company rents office premises from a resident landlord for Rs. 75,000 monthly. The monthly amount exceeds Rs. 50,000. At the 10% rate, TDS is ordinarily Rs. 7,500 on the monthly rent, subject to applicable special rules.
Example B: Machinery rent of Rs. 60,000 per month
A business rents machinery from a resident supplier for Rs. 60,000 monthly. The 2% rate gives TDS of Rs. 1,200 on the monthly rent where the payer falls within the relevant category.
Example C: Rent of Rs. 48,000 per month
Where rent paid or credited to a payee for a month or part of a month does not exceed Rs. 50,000, the threshold exemption ordinarily applies for that month under the former Section 194-I rule as amended from April 2025.
6. Exemptions and special considerations
- REIT payments: The former provision excluded qualifying rent paid or credited to a real estate investment trust in respect of directly owned real estate assets described in Section 10(23FCA). Check the corresponding 2025 Act provision for later payments.
- Non-resident landlords: Section 194-I concerns payments to residents. Rent payable to a non-resident must be examined under the non-resident withholding provisions, formerly Section 195.
- GST: Where GST on services is shown separately in an invoice, the applicable CBDT clarification may affect the TDS base. Review the actual contract and invoice.
- PAN and certificates: Failure to furnish PAN can trigger a higher statutory deduction rate. A valid lower or nil deduction certificate, where legally available, may change the amount deducted.
7. Compliance by the deductor
Where required, obtain a TAN, deposit TDS within the prescribed time, report the deduction in the applicable TDS statement, issue the appropriate TDS certificate and reconcile the amount with the payee's tax records. For payments from 1 April 2026, use the correct Section 393 table entry rather than assuming that old Section 194-I reporting codes remain valid.
8. Income-tax Act, 2025: Section 393 transition
The Income Tax Department confirms that withholding on amounts paid or credited on or before 31 March 2026 follows the Income-tax Act, 1961, while withholding for amounts paid or credited on or after 1 April 2026 follows the Income-tax Act, 2025. For resident rent, see Section 393(1), table serial number 2:
- Serial 2(i): rent paid by a person other than a specified person; 2% rate and Rs. 50,000 monthly threshold, subject to the provision's scope.
- Serial 2(ii): rent paid by a specified person; 2% for machinery, plant or equipment and 10% for land, buildings, furniture or fittings, subject to the prescribed threshold and conditions.
For a contract spanning March and April 2026, determine whether the earlier credit or payment event occurred before or after the transition date.
9. Legislative history
Section 194-I was introduced by the Finance Act, 1994, with effect from 1 June 1994. The rate structure was subsequently revised, including the 2% rate for machinery, plant and equipment and the 10% rate for other covered rent. The Finance Act, 2019 increased the annual threshold to Rs. 2,40,000 from 1 April 2019. The Finance Act, 2025 replaced that annual limit with Rs. 50,000 per month or part of a month from 1 April 2025. The Income-tax Act, 2025 then reorganised the rules into Section 393 from 1 April 2026.
10. Frequently asked questions
Is TDS under Section 194-I always 10%?
No. The former Section 194-I specified 2% for machinery, plant or equipment and 10% for land, buildings, furniture or fittings.
Is the Rs. 50,000 threshold annual?
No. Since 1 April 2025, the threshold under the amended provision is Rs. 50,000 for a month or part of a month.
Does every individual tenant deduct 10% TDS?
No. The applicable rule depends on the payer's classification and the nature of the rental asset. Certain individuals and HUFs were covered by Section 194-IB rather than Section 194-I.
What law applies to rent credited after 1 April 2026?
The relevant provisions of the Income-tax Act, 2025, principally Section 393, apply where the relevant withholding event occurs on or after that date.
11. Official legal references
- Income Tax Department - Section 194-I (2025 text)
- Income Tax Department - Section 393, Income-tax Act 2025
- Finance Act, 2025 - amendment to Section 194-I
- Income Tax Department - TDS transition FAQs
- Income Tax Department - Section 194-IB
Editorial note: This article is general information, not a substitute for applying the relevant statutory text, Finance Act, notifications and facts of an individual transaction. Rates may be affected by PAN rules, certificates or special provisions.