Section 194I TDS on Rent: Rates, Threshold, and a Worked Example

Section 194I of the Income Tax Act requires TDS on rent at 10% for land, building, furniture, and fittings, or 2% for plant, machinery, and equipment.

Since Budget 2025, the threshold for deduction is Rs 50,000 in rent for any month, working out to Rs 6 lakh a year, replacing the older annual test of Rs 2,40,000 that applied from FY 2019-20 through FY 2024-25.

This guide covers exactly who must deduct, how it differs from Section 194-IB, the NRI landlord rate, and a fully verified worked example.

The Budget 2025 Threshold Change: What's Different Now

Budget 2025 replaced Section 194I's old annual threshold of Rs 2,40,000 with a monthly test of Rs 50,000, effective April 1, 2025.

Once monthly rent crosses Rs 50,000, TDS applies to the full month's rent, not just the amount above the threshold. This monthly test now matches the structure Section 194-IB has always used for individual and HUF tenants.

What Is Section 194I?

The provision brings rental income onto the tax department's formal record. Since house property income isn't otherwise subject to books of account for most landlords, rent has historically been an income category prone to under-reporting, and TDS creates a paper trail at the source.

No surcharge or cess is added on top of these rates for resident landlords; the 10% or 2% figure is the final rate deducted.

What Counts as 'Rent' Under Section 194I

Rent covers any payment made under a lease, sub-lease, tenancy, or similar arrangement, for the use of a defined set of assets.

A refundable security deposit is not treated as rent, since it isn't income to the recipient, so no TDS applies. Advance rent that is not refundable, however, is taxed as rental income and attracts TDS at the time of payment or credit, including when the amount is routed through a suspense account.

Who Must Deduct TDS Under Section 194I?

Any payer, companies, firms, trusts, associations of persons, and local authorities among them, must deduct TDS on rent under Section 194I once the monthly threshold is crossed.

The one carve-out is individuals and Hindu Undivided Families whose business turnover does not exceed Rs 1 crore, or whose professional gross receipts do not exceed Rs 50 lakh, in the immediately preceding financial year. These taxpayers are not covered by Section 194I at all; instead, they deduct under Section 194-IB.

Section 194I vs Section 194-IB: What's the Difference?

TDS on Rent Paid to an NRI Landlord

Rent paid to a non-resident landlord falls outside Section 194I entirely. It is governed by Section 195, which requires TDS at 30%, plus applicable surcharge and a 4% Health and Education Cess, with no minimum rent threshold.

This means even a modest monthly rent paid to an NRI landlord attracts TDS from the very first rupee, unlike the Rs 50,000 monthly exemption available for resident landlords.

Worked Example: TDS on Rent Under Section 194I

ABC Pvt Ltd pays Mr. Joy, a resident property owner, Rs 75,000 a month for a building. Since this exceeds the Rs 50,000 monthly threshold, TDS applies to the full monthly amount at 10%, the rate for land and building.

If Mr. Joy has not furnished his PAN, ABC Pvt Ltd would instead deduct 20% under Section 206AA, reducing the net monthly payment to Rs 60,000.

When TDS Must Be Deducted

TDS is deducted at the earlier of two events: when rental income is credited to the landlord's account, including a suspense account, or when the payment is actually made.

Section 194I does not require monthly deduction specifically. If rent is credited quarterly, TDS is deducted quarterly; if it's credited annually, TDS is deducted once a year, based on the actual credit or payment pattern used.

Deposit Deadlines and Penalties for Late TDS

No Deduction or Lower Deduction Under Section 197

A landlord whose total income doesn't justify full TDS can apply in Form 13 to the Assessing Officer under Section 197. If satisfied, the officer issues a certificate in Form 15AA directing the tenant to deduct at a lower rate or not at all.

A simpler route exists for landlords whose income falls below the basic taxable limit: submitting Form 15G, or Form 15H for senior citizens, to the tenant avoids TDS deduction without involving the Assessing Officer.

Specific Circumstances Under Section 194I

Factory Building Rental Income

Rent from a let-out factory building is usually business income for the owner rather than house property income, but TDS under Section 194I still applies regardless of which head the income falls under in the landlord's hands.

Business Centre Service Charges

Service charges paid to a business centre fall within the definition of rent, since the section covers any payment "by whatever name called" for the use of premises.

Building and Furniture Let Out by Separate Owners

If one person owns the building and a different person owns the furniture inside it, TDS must be deducted separately against each owner's share of the rent.

Cold Storage Charges

Cold storage arrangements are contractual service agreements, not a lease or tenancy, so payments to a cold storage facility fall under Section 194C rather than Section 194I.

Hall Rent Paid by an Association

An association of persons is treated as a distinct assessee, not an individual or HUF, so it must deduct TDS on hall rental once payment for the use of the hall exceeds Rs 50,000 in a month.

Hotel Bills for Seminars Including Catering

Where a hotel bills separately for room or hall use and for catering, Section 194I applies only to the premises portion. The catering portion falls under Section 194C instead.

Frequently Asked Questions: Section 194I