When rent is paid to a resident landlord, TDS may apply depending on who the tenant is and the amount of rent paid. Under the Income Tax Act, 1961, two different sections govern TDS on rent—Section 194-I and Section 194-IB.
Each section applies to a different category of tenant, with separate thresholds, rates, and compliance requirements.
Here is a simplified and updated guide as per 2025 rules.
- Two Main Sections Governing TDS on Rent
✔ Section 194-I — For Businesses & Audit-Case Individuals/HUFs
Applies when the tenant is:
- A company, firm, LLP, trust, body corporate, or
- An individual/HUF whose accounts are subject to audit under Section 44AB.
✔ Section 194-IB — For Individuals/HUFs Not Under Tax Audit
Applies to regular individuals or HUFs whose accounts are not audited under Section 44AB.
- Section 194-I – TDS on Rent (For Companies, Firms & Audit-Case Individuals)
Who Must Deduct TDS?
TDS under 194-I is applicable when the tenant is:
- A company, LLP, firm, trust, or any entity other than individual/HUF, or
- An individual/HUF liable for tax audit under Section 44AB (business turnover > ₹1 crore or profession > ₹50 lakh)
What Is Considered ‘Rent’?
Payments for the use of:
- Land
- Building (including factory buildings)
- Plant, machinery, equipment
- Furniture or fittings
- Any arrangement giving the right to use the above
Revised Threshold (Applicable From 1 April 2025)
TDS is required when:
- Monthly rent exceeds ₹50,000
(Previous limit: ₹2,40,000 per year)
This brings the threshold in line with Section 194-IB and removes the old annual calculation method.
TDS Rates
- 10% → Rent for land, building, furniture, fittings
- 2% → Rent for machinery, plant, equipment
When to Deduct?
TDS must be deducted:
- At the time of credit, or
- At the time of payment,
whichever is earlier.
Compliance Requirements
The tenant must:
- Deposit TDS via Challan ITNS 281 by the 7th of the next month
- File Form 26Q quarterly
- Issue Form 16A to the landlord
Example
A company pays ₹75,000 per month as office rent:
- Rent > ₹50,000 → TDS applies
- Rate for building → 10%
- TDS = ₹75,000 × 10% = ₹7,500 per month
- Section 194-IB – TDS for Non-Audit Individuals & HUFs
This section is designed to simplify TDS for regular individuals and small HUFs.
Who Needs to Deduct?
- Any individual or HUF not subjected to tax audit
- Monthly rent must be more than ₹50,000
Threshold & Rate (Latest Amendment)
- Threshold: Rent > ₹50,000/month
- TDS Rate: 2% of total rent for the year
(reduced from 5% from 1 October 2024)
When to Deduct?
Unlike Section 194-I, deduction is not monthly.
It is deducted only:
- In the last month of the financial year, OR
- In the last month of the tenancy, whichever is earlier.
Compliance Steps
- File Form 26QC (challan-cum-statement)
- Deposit TDS within 30 days from the end of the month of deduction
- Issue Form 16C to the landlord within 15 days
Example
Monthly rent = ₹60,000 from April 2025–March 2026
- Total rent = ₹7,20,000
- TDS @ 2% = ₹14,400
TDS is deducted in March 2026, deposited by 30 April, and reported in Form 26QC.
- What Landlords Should Ensure
To avoid future issues, landlords should:
- Provide PAN to the tenant (otherwise 20% TDS applies)
- Regularly check Form 26AS/AIS for TDS credit
- Report rental income under Income from House Property
- Keep Form 16A/16C safely
- Follow up with the tenant if TDS is not deducted or deposited properly
- Quick Comparison Table
| Section | Tenant Category | Threshold | Rate | Deduction Timing |
| 194-I | Company / Firm / LLP / Audit-case Individuals/HUF | ₹50,000 per month | 10% (land/building); 2% (machinery) | Monthly |
| 194-IB | Individual/HUF (not under audit) | > ₹50,000 per month | 2% | Once in last month |
- Why These Changes Matter
- Increasing the threshold under 194-I to ₹50,000/month (≈ ₹6 lakh/year) reduces TDS compliance for small rental agreements.
- Reducing the 194-IB rate to 2% prevents high tax deductions for individual tenants.
- The updated rules simplify rental taxation but still require timely compliance to avoid interest and penalties.
Conclusion
The updated 2025 TDS rules on rent streamline the compliance process while providing relief to both tenants and landlords. Section 194-I now applies only to higher rental amounts paid by businesses and audit-case individuals, while Section 194-IB eases the burden for regular individuals with a flat 2% TDS rate.
Understanding which section applies, the applicable threshold, and the correct compliance process ensures smooth transactions and prevents future disputes with the tax department. For both tenants and landlords, timely deduction, deposit, and reporting of TDS remain essential for hassle-free tax management.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.