Section 194-I of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on rent payments exceeding specified thresholds. Below is a structured breakdown of its provisions, rates, exemptions, and compliance requirements:
1. Applicability of Section 194I
✅ Covered Payments:
- Rent for land, building(residential/commercial), factory premises, furniture, fittings, plant, machinery, or equipment.
- Payments under lease, sub-lease, tenancy, or any similar arrangement.
❌ Exclusions:
- Refundable security deposits(not treated as income).
- Rent paid to government entities(no TDS required).
2. Who Must Deduct TDS?
- Entities other than individuals/HUFs:
- Companies, firms, trusts, etc.
- Required if annual rent > ₹6 lakh(post-Budget 2025).
- Individuals/HUFs:
- Only if liable for tax audit(business turnover > ₹1Cr/professional receipts > ₹50L).
- Others use Section 194-IB(TDS @ 2% if rent > ₹50,000/month).
3. TDS Rates & Thresholds
| ASSET TYPE | TDS RATE (PAN PROVIDED) | THRESHOLD (ANNUAL) |
| Land, building, furniture | 10% | ₹6 lakh |
| Plant, machinery, equipment | 2% | ₹6 lakh |
| PAN Not Provided | 20% (under Section 206AA) | – |
| Rent to NRIs | 30% + cess (no threshold) | – |
4. Key Changes (Budget 2025)
- Threshold increasedfrom ₹2.4 lakh to ₹6 lakh annually.
- No cess/surchargeon TDS under Section 194-I.
5. Compliance Requirements
- Deduction Timing: Earlier of paymentor credit to payee’s account.
- Deposit Deadline:
- 7th of next month(e.g., July TDS by August 7).
- March TDS: By April 30.
- TDS Return: File Form 26Q
- Certificate: Issue Form 16Ato landlord.
6. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing: Penalty up to ₹1 lakh.
7. Exemptions & Lower TDS
- Form 15G/15H: If landlord’s income is below taxable limits.
- Lower TDS Certificate (Form 13): Obtain from Assessing Officer if justified.
Example Scenario
- Rent Paid: ₹80,000/month (commercial building).
- Annual Rent: ₹9.6 lakh (>₹6 lakh threshold).
- TDS (10%): ₹8,000/month (₹96,000/year).
- Net Payment: ₹72,000/month.
Key Takeaways
🔹 10% TDS on land/building rent > ₹6L/year; 2% for machinery/plant.
🔹 Individuals/HUFs use Section 194-IB for rents > ₹50K/month.
🔹 No TAN required for Section 194-IB deductions.
🔹 Track advance rent: TDS applies even if paid for future years
