Section 194I of the Income Tax Act explains how to deduct Tax Deducted at Source (TDS) on rent payments. This section is meant for individuals or businesses paying rent for land, buildings, plant and machinery, furniture, and fittings.

What is Section 194I?

Section 194I requires anyone (except individuals or Hindu Undivided Families, or HUFs) who pays rent to deduct tax at the time of payment or when the amount is credited to the landlord’s account. For the financial year 2024-25, rent payments exceeding ₹2,40,000 annually are subject to TDS. If the payer is an individual or HUF that falls under the tax audit, they also must deduct TDS on rent.

Why Was TDS on Rent Introduced?

TDS on rent, introduced by the Finance Act, 1994, ensures that income earned through rent is taxed just like any other income. Many other countries also have similar rules to tax rent income at the source.

Important Rules for TDS on Rent

1. The landlord’s PAN number must be provided to avoid a higher TDS deduction (20% instead of the standard rate) under Section 206AA.
2. No additional education cess or other taxes are added to TDS on rent.
3. Rent includes payments for the use of land, buildings, machinery, equipment, furniture, and fittings. This applies whether the property is leased or subleased.

What is the Rate of TDS?

Sr. No.	Nature of Payment	Rates of Tax Deduction
1	Rent of plant, equipment and machinery	2%
2	Rent of land, building, furniture or fitting	10%

What Payments Are Covered Under Section 194I?

• Factory Building Rent: Even if rent from a factory building is treated as business income, TDS must still be deducted.
• Service Charges: Any service charges paid for the use of premises are considered part of the rent and subject to TDS.
• Quarterly or Yearly Rent Payments: TDS is deducted when rent is credited, whether paid monthly, quarterly, or yearly.

When TDS is Not Deductible

TDS under Section 194I is not required in the following situations:

1. If Rent Paid is Less Than ₹2,40,000 Annually: No TDS is needed.
2. Individuals or HUFs Not Audited: If the payer is an individual or HUF not subject to tax audit, no TDS is required.
3. Film Exhibition Payments: Payments made to film exhibitors (like cinema owners) are not considered rent.

TDS on Rent by Individuals if Tax Audit is Not Applicable

Particulars	Section 194-I	Section 194-IB
Applicability	Rent paid by an individual/HUF (only if tax audit was applicable in the preceding FY), orRent paid by any other person	Rent paid by individual/HUF (tax audit not applicable in the preceding FY)
Limit	2,40,000 per annum	Rs 50,000 per month
Rate	2% of rent on plant and machinery10% of rent on land, building or furniture	5% of land or building or both

TDS on Rent Paid to Non-Residents (NRIs)

When paying rent to an NRI, a higher TDS rate of 30% plus surcharge and cess applies, regardless of the rent amount. However, the NRI may apply for a lower or no TDS if their total income is below the exemption limit.

Example

If ABC Pvt. Ltd. rents a building from Mr. Joy for ₹25,000 per month, the total rent for the year will be ₹3,00,000, which exceeds ₹2,40,000. Therefore, ABC Pvt. Ltd. must deduct 10% TDS on the rent payments.

Frequently Asked Questions

1. Does rent include payments made to a hotel for rooms hired during the year?
   Yes, as per Circular No. 715, dated 8-8-1995 issued by the Income Tax Department, payments made by individuals or HUFs for regularly hiring hotel rooms are subject to tax deduction under Section 194-I.
2. Does the rent exemption limit of Rs. 2.4 lakh per annum under Section 194-I apply separately to each co-owner of a property?
   Yes, under Section 194-I, TDS is deducted if the rent payment exceeds Rs. 2.4 lakh annually. For co-owners with definite and ascertainable shares in the property, the Rs. 2.4 lakh limit applies individually to each co-owner.
3. Should rent be enhanced for notional income based on a deposit given to the landlord?
   No, TDS is deducted on actual payments, not on notional income calculated from deposits. If a deposit is adjusted against future rent, it is treated as advance rent and is subject to TDS.
4. What is the exemption limit for TDS on rent?
   The TDS exemption limit for rent under Section 194-I is Rs. 2.4 lakh per annum. For rent payments under Section 194-IB, the limit is Rs. 50,000 per month.
5. Will tax be deducted from the GST included in my rent?
   No, GST is not considered part of the landlord’s income. Therefore, TDS under Section 194-I is deducted without including the GST component.
6. Which form should I file if Nil tax is applicable on my income?
   If no tax is applicable to your income and you are receiving rent, you can submit Form 15G or Form 15H to request non-deduction of TDS.
7. How can I claim a deduction for rent paid?
   Rent payments can be claimed as a deduction under Section 10(13A) (for HRA) or Section 80GG if applicable.

How is the threshold limit applied in case of rent paid to co-owners?
When each co-owner’s share in the property is definite and ascertainable, the Rs. 2.4 lakh limit is applied individually to each co-owner.