Section 194I- TDS on Rent

The tax deduction from rent payments is mandated by section 194-I of the Income-tax Act.

Section 194-I provides for the deduction of tax by any person (excluding specified individuals or HUFs) from the sum paid or payable as rent to a resident person which exceeds Rs. 2,40,000 during the financial year.

FAQs on TDS on Rent (Section 194-I)

• Who is liable to deduct tax at source (TDS) on rental payments under section 194-I?

  Any person, other than an Individual or HUF, responsible for paying rent is required to deduct tax under s​ection 194-I. An individual or HUF engaged in the business or profession having turnover or gross receipts exceeding Rs. 1 crore or Rs. 50 lakhs respectively.

  Further, no deduction shall be made if the rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust.​

• When the tax is required to be deducted under section 194-I?
  Tax is required to be deducted under s​ection 194-I only if the rent is payable to a person who is a resident of India.
  The tax shall be deducted at the time of credit of such rent or payment to the payee, whichever is earlier.​
• What is the threshold limit prescribed for the deduction of tax under section 194-I?
  The tax shall be deducted by the payer if the amount paid or payable exceeds Rs. 2,40,000 during the financial year.
  However, in the case of joint owners of a property, the threshold limit of Rs. 2,40,000 applies to each owner individually if their share in the property is definite and ascertainable.​
• What is the rate at which tax is required to be deducted under section 194-I?

  The rate of deduction of tax at source (TDS) is 2% in case rent is paid for the use of plant, machinery, or equipment. However, if rent is paid for the use of land, building (including factory building), or land appurtenant thereto or furniture or fittings, the rate of tax would be 10%.

  Further, these rates will not be enhanced by surcharge or health and education cess.​

• What will be the rate of TDS under section 194-I if the payee does not furnish PAN?

  ​As per s​ection 206AA, if the payee does not furnish PAN, tax shall be deducted at a rate higher of the following:

  • The rate prescribed in the relevant provisions of the Act, or
  • Rate or rates in force, or
  • 20%​

• What will be the rate of TDS under section 194-I if payee is a non-filer of income-tax return?

  As per section 206AB, if the payee has not furnished its return of income as per section 139(1​) and the due date has expired, tax is required to be deducted at a rate higher of the following:

  • Twice the rate prescribed in the relevant provisions of the Act, or
  • Twice the rates in force, or
  • 5%​

• What will be the rate of TDS under section 194-I if payee is a non-filer of income-tax return and also doesn’t furnish his PAN?
  ​In this case, the tax shall be deducted at the rates specified under section 206AA or s​ection 206AB, whichever is higher.
• How to deduct tax at source under section 194-I in case the building is let out along with machinery or other equipment?

  The rental proceeds are considered as composite rent in case other assets such as plant, machinery, or equipment are also let out along with land or building. The tax deduction in such case would be as under:

  (a) If there is a separate agreement for letting out of land or building and letting out of other assets:

  The tax shall be deducted at the rate of 10% from the payment of rent of land or building and 2% from the rental payment of machinery, plant, or equipment.

  (b) If there is no separate agreement for letting out of land or building and letting out of other assets:

  The tax shall be deducted at the rate of 10% or 2% depending upon the substantial element of the rent agreement. If the renting of machinery, plant, or equipment is incidental to the renting of land or building, tax shall be deducted at the rate of 10%.​
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• Whether payee can claim for nil/lower deduction of tax under section 194-I?
  ​​Yes, where estimated tax liability of an assessee justifies nil deduction of tax, he can file a declaration to the deductor for nil deduction of tax under Section 197A. Further, he also has the option to apply before the assessing officer for a nil or lower deduction certificate under Section 197​.
• What is the time limit to deposit the tax amount deducted under section 194-I?

  ​Tax deducted at source under s​ection 194-I is required to be deposited to the credit of the Central Government through Challan ITNS 281 within 7 days from the end of the month in which tax was deducted. However, the tax deducted during the month of March shall be deposited by 30th April of the next financial year.

  If deductor is a government office and tax is required to be deposited without submitting an Income-tax Challan, the Govt. Dept. shall deposit the tax on the same day on which tax has been deducted.​

• Is there any requirement to furnish TDS Statement for tax deducted under section 194-I?
  ​​The person responsible for deduction of tax at source under s​ection 194-I is required to file a statement of tax deducted at source in Form 26Q on quarterly basis. ​​
• Whether the deductor is required to issue TDS Certificates to the deductee?
  ​The deductor is required to issue a TDS certificate to the deductee in Form No. 16A within 15 days from the due date of furnishing of the TDS Statement.​​