New Delhi: Understanding Tax Deducted at Source (TDS) on rent is crucial for both landlords and tenants in India. Under Section 194-I of the Income Tax Act, certain rental payments require mandatory TDS deductions—ensuring tax compliance and preventing evasion.
If annual rent exceeds ₹2.40 lakh, TDS rules come into play, making it essential to know how rates are applied, how to calculate deductions, and the penalties for non-compliance.
Key Highlights
- Applicability: Annual rent above ₹2,40,000 attracts TDS under Section 194-I.
- Rates: 2% for plant and machinery; 10% for land and buildings.
- High-Value Rentals: Section 194-IB mandates 5% TDS for monthly rent above ₹50,000 (with PAN).
- NRI Landlords: TDS rate of 30% plus 4% education cess.
- Filing: TDS deposits under Section 194-I require Form 26Q.
- Penalties: Delays or defaults can result in fines under Sections 234E and 271H.
What is TDS on Rent?
TDS on rent means a portion of the rent is deducted at the source by the payer (tenant) and deposited with the government. This system ensures taxes are collected in real-time rather than waiting for annual returns.
Previously, the annual threshold was ₹1.80 lakh, but from FY 2019-20, it increased to ₹2.40 lakh. The applicable rates are:
- 10% for land, building, or furniture rentals.
- 2% for machinery, plant, or equipment rentals.
- 5% for individual/HUF tenants paying monthly rent above ₹50,000 (under Section 194-IB).
Failure to provide a valid PAN can push the TDS rate up to 20%.
Exemptions
- Rent for agricultural land is exempt.
- Payments to certain government agencies and tax-exempt bodies are outside the TDS scope.
- Refundable security deposits are not subject to TDS, though advance rent is.
Applicability and Obligations
The rule applies to individuals, HUFs, companies, and other entities making qualifying rent payments. Even co-owners must calculate TDS on their respective share if the total exceeds the threshold.
| Asset Type | TDS Rate | Threshold |
|---|---|---|
| Plant & Machinery | 2% | ₹2,40,000 annually |
| Land/Building/Furniture | 10% | ₹2,40,000 annually |
| No PAN Provided | 20% | N/A |
| Monthly Rent > ₹50,000 (194-IB) | 5% | N/A |
Calculation Example
If annual rent for a building is ₹6,00,000, TDS = ₹60,000 (10% rate). For equipment rented at ₹12,00,000, TDS = ₹24,000 (2% rate). For NRI landlords with ₹18,00,000 annual commercial rent, TDS = ₹5,40,000 (30% rate).
Special Considerations
- Regular hotel room bookings and warehouse rentals fall under TDS provisions.
- Composite rent (covering multiple assets) is taxed based on the primary asset.
- Airport Authority landing/parking fees are treated as rent.
Filing & Payment
- Form 26QC is used for reporting rent-related TDS (especially under Section 194-IB).
- Quarterly filing deadlines: July 31, Oct 31, Jan 31, May 31.
- Payment must be made within 7 days from the month-end of deduction.
Penalties for Non-Compliance
- Interest at 1% per month for late deduction; 1.5% per month for late payment.
- Late filing fee: ₹200 per day.
- Penalty equal to the amount of tax not deducted/paid.
- From October 1, 2024, TDS on rent under Section 194-IB will drop from 5% to 2%.
Why It Matters
Following TDS rules protects landlords and tenants from legal trouble, ensures smoother tax filing, and prevents hefty penalties. As the rental market evolves, understanding Section 194-I has become more important than ever.
FAQs
Q. What is the threshold for TDS on rent?
A. ₹2,40,000 annually under Section 194-I; ₹50,000 monthly under Section 194-IB.
Q. Is PAN mandatory?
A. Yes—without PAN, the rate increases to 20%.
Q. Are service charges included in rent for TDS?
A. Yes, if they are part of the rental agreement.