The provisions relating to TDS on rent have been restructured under the Income-tax Act, 2025. The earlier Section 194I of the Income-tax Act, 1961 is now covered under Section 393(1) [Table: Sl. No. 2(ii).D(a) & 2(ii).D(b)], effective from 1st April, 2026.
This restructuring introduces a table-based classification distinguishing between rent on plant & machinery and rent on other assets. The scope, applicability, and compliance requirements remain aligned with the earlier provisions.
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(1)
- Table Reference: Table: Sl. No. 2(ii).D(a) & 2(ii).D(b)
- Nature of Payment: Rent (Plant & Machinery / Land, Building & Furniture)
- Earlier Section (IT Act 1961): Section 194I (a) & (b)
- Return Form: 26Q
- Code (for return filing):
- 1008 – Rent on machinery etc.
- 1009 – Rent other than machinery etc.
Applicability of TDS on Rent
Any person responsible for paying rent to a resident is required to deduct tax at source, except individuals and HUFs not subject to tax audit.
The provision applies to payments made under lease, sub-lease, tenancy, or similar arrangements for use of assets.
Rent includes payments for:
- Plant and machinery
- Land and building
- Furniture and fittings
Who is Required to Deduct TDS?
- Any person responsible for paying rent to a resident
- Individuals and HUFs covered under tax audit
Individuals and HUFs not liable for tax audit are generally not required to deduct TDS under this section.
Time of Deduction
TDS is required to be deducted at the earlier of:
- At the time of credit of rent to the account of the payee
- At the time of payment by cash, cheque, draft, or any other mode
Rate of TDS
The rates for TDS under this section vary based on the type of asset:
| Section | Type of Rental Payment | TDS Rate |
|---|---|---|
| 194I(a) | Rent for plant, machinery, or equipment | 2% |
| 194I(b) | Rent for land, buildings, furniture, or fittings | 10% |
For payments to non-resident Indians (NRIs), the rate is 30%, with an additional surcharge and cess, irrespective of the amount. In cases where PAN is not furnished, tax shall be deducted at the higher of:
- The applicable rate specified above, or
- 20% as per applicable provisions
Threshold Limit
TDS is required to be deducted only if rent exceeds ₹50,000 per month.
Nature of Payments Covered
The following payments are treated as rent under this provision:
- Payments under lease, sub-lease or tenancy agreements
- Payments for use of land, buildings, machinery, plant, furniture or fittings
- Advance rent (unless refundable)
Refundable security deposits are not subject to TDS.
Key Coverage Points
- Rent from factory buildings is subject to TDS even if treated as business income by the recipient
- Service charges for business centres are treated as rent
- Hall rentals are subject to TDS where threshold is exceeded
- Cold storage payments are not treated as rent and fall under a different provision
Exceptions
- Rent does not exceed ₹50,000 per month
- Payment made by individuals or HUFs not liable for tax audit (except specific cases)
- Certain revenue-sharing arrangements not classified as rent
TDS Payment Deadlines
- Government payments: Same day (book entry)
- Other payments: On or before the 7th of the following month
- For March: On or before 30th April
Consequences of Non-Compliance
- Non-deduction of TDS: Interest at 1% per month
- Non-deposit of TDS: Interest at 1.5% per month
Purpose of the Provision
Section 194I was introduced to bring rental income within the tax net and ensure tax collection at the source of payment.
Illustration
- Monthly Rent: ₹60,000
- Annual Rent: ₹7,20,000
Since the rent exceeds the threshold, TDS is applicable.
- Applicable Rate: 10% (rent of building)
- Monthly TDS: ₹6,000
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