When it comes to income tax in India, Tax Deducted at Source (TDS) plays a crucial role. It ensures that taxes are collected right when income is generated — even before the money reaches the recipient. One of the most common situations where TDS applies is rent payments.
If you are a landlord, tenant, or business paying/receiving rent, it’s important to understand how Section 194-I and Section 194-IB of the Income Tax Act, 1961 work. These provisions clarify who should deduct TDS, when it should be deducted, and at what rates.
Section 194-I: The Core Provision for TDS on Rent
1. Who Needs to Deduct
- Companies, partnership firms, LLPs, and HUFs must deduct TDS on rent.
- Individuals & HUFs are required to deduct TDS only if they were subject to tax audit under Section 44AB in the preceding financial year.
2. Who Receives the Rent?
- The payee (recipient of rent) must be a resident of India.
- If rent is paid to a non-resident, Section 195 applies instead.
- 👉 Even if payments are called by another name (like lease rent), they are treated as rent.
3. What Qualifies as Rent?
- Land
- Buildings
- Furniture & fixtures
- Plant, machinery, or equipment
4. Threshold for Deduction
- TDS is not required if total annual rent to a single landlord is less than ₹2,40,000.
- If rent crosses this limit, TDS must be deducted.
5. When to Deduct TDS?
- At the time of crediting rent in books, OR
- At the time of actual payment — whichever is earlier.
6. Special Cases
- Security Deposits → No TDS (if refundable).
- Advance Rent → TDS applicable.
7. TDS Rates Under Section 194-I
- 2% for rent of plant & machinery.
- 10% for rent of land, building, furniture & fixtures.
- 20% if landlord doesn’t provide PAN.
Section 194-IB: TDS for Individuals (Not Under Audit)
1. Applicability
- Applies to individuals and HUFs not covered under tax audit.
- Triggered when monthly rent is ₹50,000 or more.
2. TDS Rate
- Flat 5% on the rent amount.
- No TAN required — tenant can use their PAN.
3. Threshold
- Unlike Section 194-I (annual ₹2.4 lakh), here the limit is ₹50,000 per month.
4. When to Deduct & Deposit TDS Rate
- TDS must be deducted when rent is paid or credited (whichever is earlier).
- Deposit with government by 7th of next month.
Key Differences Between Section 194-I and 194-IB
Aspect | Section 194-I | Section 194-IB |
Who Deducts TDS? | Companies, Firms, LLPs, HUFs (under audit) | Individuals & HUFs (not under audit) |
Threshold | ₹2,40,000 per year | ₹50,000 per month |
TDS Rate | 2% (plant/machinery) / 10% (land/building) | 5% flat |
TAN Requirement | Mandatory | Not required (PAN can be used) |
✅ Conclusion
- Section 194-I applies mainly to businesses and audited individuals, with higher annual thresholds.
- Section 194-IB ensures individuals paying high monthly rent also contribute through TDS.