TDS on rent applies when a tenant makes specified rental payments and satisfies the applicable conditions under the Income-tax Act, 2025. Depending on the applicable section and the type of asset rented, the tenant deducts TDS at rates ranging from 2% to 10%. The tenant deducts 2% on plant, machinery, and equipment, 10% on land, building, and furniture, and 2% on rent that individuals or HUFs pay under Section 194IB.
Businesses, tax audit cases, and individuals or HUFs paying rent above the prescribed limit must check the relevant section, threshold, and TDS rate before making payment. Incorrect deduction or delayed deposit of TDS can result in interest under Section 201(1A), late filing fees under Section 234E, penalties, and other compliance consequences.
For FY 2026–27, taxpayers mainly need to understand Section 194I and Section 194IB for rent-related TDS compliance. Section 194I applies to specified deductors paying rent to residents, while Section 194IB applies to individuals and HUFs paying rent above ₹50,000 per month (₹6,00,000 a year).
While this guide focuses on TDS on rent, you can also refer to our TDS Rate Chart for a complete overview of TDS rates, threshold limits, and applicable sections for different types of payments.
Key Takeaways
- Section 194I applies to businesses and tax audit cases, while Section 194IB applies to individuals and HUFs not covered under tax audit.
- The TDS threshold is ₹50,000 per month (or part of a month) for both Sections 194I and 194IB in FY 2026–27.
- TDS rates vary by asset type and section: 2% for plant and machinery, 10% for land, buildings, furniture, and fittings under Section 194I, and 2% under Section 194IB.
- Section 194I requires Form 26Q and Form 16A, whereas Section 194IB requires Form 26QC and Form 16C.
- Tenants must deduct TDS at the prescribed time and deposit it within the applicable due dates to remain compliant with the Income-tax Act.
- If the landlord does not provide a valid PAN, the tenant must deduct TDS at 20% under Section 206AA instead of the applicable standard rate.
- Late deduction, delayed deposit, or non-compliance can attract interest, late filing fees, penalties, and disallowance of expenses under the applicable provisions of the Income-tax Act.
TDS on Rent Chart FY 2026 27 – Rate and Section Reference
The table below summarizes the applicable TDS provisions on rent for Financial Year 2026–27 (Assessment Year 2027–28). It covers the relevant sections, TDS rates, and category of deductor, along with the revised threshold limits that the Finance Act, 2025, introduced from April 1, 2025:
| TDS Section | Applicable Rent Type | Who Must Deduct | Threshold Limit | TDS Rate (PAN Available) | TDS Rate (No PAN) |
| Section 194I(a) | Rent of plant, machinery, and equipment | All persons (individuals, HUFs, companies, firms) subject to tax audit | ₹50,000 per month (or part of a month) | 2% | 20% |
| Section 194I(b) | Rent of land, building, and furniture or fittings | All persons (individuals, HUFs, companies, firms) subject to tax audit | ₹50,000 per month (or part of a month) | 10% | 20% |
| Section 194IB | Rent paid by an individual or HUF is not subject to tax audit | Individual or HUF not covered under Section 194I (not required to get a tax audit done) | ₹50,000 per month | 2% (reduced from 5% to 2% w.e.f. October 1, 2024) | 20% |
Note: The Finance (No. 2) Act, 2024, reduced the TDS rate under Section 194IB from 5% to 2% with effect from October 1, 2024, and this rate continues for FY 2026–27. Separately, the Finance Act, 2025, increased the Section 194I threshold from ₹2,40,000 per financial year to ₹50,000 per month (or part of a month), effective April 1, 2025.
Section 194I – TDS on Rent for Businesses and Tax Audit Persons
Section 194I applies to persons (businesses and professionals) who must get their accounts audited under Section 44AB and who pay rent to a resident.
TDS Rate on Rent Under Section 194I
Section 194I prescribes different TDS rates based on the nature of the rented asset:
- Section 194I(a) – Plant, machinery, and equipment: The tenant deducts TDS at 2% on rent paid for plant, machinery, equipment, generators, vehicles, or other movable assets given on rent.
- Section 194I(b) – Land, building, and furniture: The tenant deducts TDS at 10% on rent paid for land, buildings, furniture, or fittings. If a single agreement covers both a building and furniture, 10% applies to the entire rent payment.
Threshold Limit for TDS on Rent Under Section 194I
Under Section 194I, the tenant must deduct TDS only if the rent paid or payable exceeds ₹50,000 for a month or part of a month. Once the rent crosses this threshold, the tenant deducts TDS on the entire rent payable for that month, not merely on the amount exceeding ₹50,000.
When to Deduct and Deposit TDS Under Section 194I?
TDS under Section 194I must be deducted at the time of crediting the rent to the landlord’s account or at the time of payment, whichever is earlier. For monthly rent, the deduction is generally made when the monthly rent is credited in the books.
The deducted TDS must be deposited by the 7th of the following month. For TDS deducted in March, the due date is April 30. The deductor must file quarterly TDS returns in Form 26Q and issue Form 16A to the landlord within 15 days of the due date for filing the relevant quarterly return.
Section 194IB – TDS on Rent Above ₹50,000 Per Month by Individuals
Section 194IB applies to individuals and HUFs not required to get their accounts audited under Section 44AB who pay rent exceeding ₹50,000 for a month or part of a month to a resident landlord. This provision generally covers salaried employees, small business owners, and professionals not liable for a tax audit.
TDS Rate and Threshold Under Section 194IB
Under Section 194IB, the tenant deducts TDS at 2% on the total rent paid or payable during the financial year if the monthly rent exceeds ₹50,000. The tenant makes this deduction only once, at the time of credit or payment for the last month of the financial year or the last month of the tenancy, whichever is earlier.
Section 194IB Example
A salaried employee pays ₹55,000 per month from April 2026.
Total rent for FY 2026–27 is ₹6,60,000 (₹55,000 × 12). TDS at 2% is ₹13,200.
The tenant deducts ₹13,200 from the March 2027 rent and deposits it by April 30, 2027.
The landlord receives ₹41,800 for March after TDS deduction.
Differences Between Section 194I vs Section 194IB
The following table highlights the key differences between Section 194I and Section 194IB for quick reference:
| Factor | Section 194I | Section 194IB |
| Who must deduct? | Businesses, companies, firms, and individuals/HUFs covered under tax audit | Individuals and HUFs not subject to tax audit |
| Threshold limit | ₹50,000 per month (or part of a month) | ₹50,000 per month (or part of a month) |
| TDS rate – building | 10% | 2% |
| TDS rate – machinery | 2% | Not applicable |
| Frequency of deduction | At each credit or payment | Once in the last month of the financial year or tenancy |
| TDS return | Form 26Q (quarterly) | Form 26QC (challan-cum-statement) |
| TDS certificate | Form 16A | Form 16C |
How to Deposit TDS and File Returns Under Section 194IB?
Unlike Section 194I, Section 194IB tenants follow a separate process to deduct, deposit, and file TDS on rent:
- Deposit: The tenant deposits TDS by filing Form 26QC, a challan-cum-statement, on the Income Tax e-Filing portal (incometax.gov.in) within 30 days from the end of the month in which the tenant deducts TDS. For TDS deducted in March 2027, the due date falls on April 30, 2027.
- TDS Return: Form 26QC works as both the TDS challan and the TDS statement. Section 194IB requires no separate quarterly TDS return.
- TDS Certificate: After filing Form 26QC, the tenant downloads Form 16C from the TRACES portal (tdscpc.gov.in) and gives it to the landlord within 15 days from the due date of Form 26QC filing.
- PAN of the Landlord: The tenant obtains the landlord’s PAN before deducting TDS. If the landlord fails to furnish a valid PAN, the tenant deducts TDS at 20% under Section 206AA instead of the standard 2%.
Consequences of Not Deducting or Not Depositing TDS on Rent
Failure to complete TDS deduction on rent, deposit, or filing within the prescribed timeline can result in interest, fees, and penalties under the Income-tax Act:
- Interest under Section 201(1A): If the tenant does not deduct TDS, they must pay interest at 1% per month or part of a month, from the date the TDS became deductible to the date they actually deduct it. If the tenant deducts TDS but does not deposit it, they must pay interest at 1.5% per month or part of a month, from the date of deduction to the date of deposit.
- Late filing fee under Section 234E: The tenant must pay a fee of ₹200 per day for the delay in filing the required TDS statement, subject to the maximum amount of TDS payable.
- Penalty under Section 271C: The Assessing Officer may levy a penalty equal to the amount of TDS that was not deducted. This is in addition to the interest payable under Section 201(1A).
- Disallowance under Section 40(a)(ia): A business may face a disallowance of 30% of rent expenses while calculating taxable income if it fails to deduct or deposit required TDS within the prescribed time.
Businesses should also review the TDS Compliance Checklist to understand key TDS compliance requirements, timelines, and best practices for avoiding penalties.
Conclusion
TDS on rent ultimately depends on which section applies to the payer. Businesses and those covered under tax audit fall under Section 194I, which levies 2% on plant and machinery and 10% on land, buildings, and furniture. Individuals and HUFs who pay more than ₹50,000 a month and are not under audit fall under Section 194IB, where they deduct 2% once a year through Form 26QC.
The payer should obtain the landlord’s PAN before deducting, since a missing PAN raises the rate to 20% under Section 206AA. By depositing on time, filing the correct form, and issuing the certificate, a tenant avoids the interest, fees, and disallowance that commonly affect defaulters.
