Summary: Section 194I of the Income Tax Act mandates Tax Deducted at Source (TDS) on rent payments. This applies to individuals and entities, excluding most individuals and Hindu Undivided Families (HUFs), unless their preceding financial year’s turnover exceeded specific thresholds (Rs. 1 crore for business, Rs. 50 lakhs for profession). TDS rates are 2% for machinery, plant, or equipment, and 10% for land, building, furniture, or fittings. Effective April 1, 2025, no TDS is required if the monthly rent does not exceed Rs. 50,000; previously, the annual threshold was Rs. 2,40,000. If the recipient lacks a Permanent Account Number (PAN), a 20% TDS applies. The definition of ‘rent’ is broad, encompassing payments for land, buildings, machinery, plant, equipment, furniture, and fittings under various agreements. CBDT clarifications specify that non-refundable deposits are considered rent for TDS purposes, while refundable deposits are not, though interest on them may fall under Section 194A. Warehouse charges are subject to 194I TDS, but cold storage payments fall under Section 194C. Municipal tax or land rent paid directly by the tenant are not subject to TDS. Advance rent payments are subject to TDS at the time of payment. When multiple payees are involved, each may claim the exemption limit. Payments to government or autonomous institutions are exempt from 194I TDS. Rent for hoarding space is covered, but if charged as an advertisement, Section 194C applies instead.
Section 194I read as under:
Any person not being an individual or a Hindu Undivided Family, who is responsible for payment to [a resident] any income by way of rent, shall, at the time of credit of such income in the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier deduct income-tax thereon at the rate of-
[(a) two percent for the use of any machinery or plant or equipment, and
(b) ten percent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings]
No deduction shall be made under this section where the income by way of rent credited or paid during the year does not exceed Rs.2,40,000.
Substituted by the Finance Act 2025, w.e.f. 1st April, 2025 instead of Rs. 2,40,000 during year, the amount of rent does not exceed Rs. 50,000 per month.
Further it is provided that an individual or HUF, whose total sales, gross receipts or turnover from the business or profession carried out by him exceed one crore rupees in case of business or fifty lakhs rupees in case of profession during the financial year immediately preceding the financial year in which such income by way of ret is credited or paid, hall be liable to deduct income-tax under this section 194I.
For the purpose if this section ‘rent’ means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement of any;-
(a) land; or
(b) building ( including factory building); or
(c) land appurtenant to a building; or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
Whether or not any or all of the above are owned by the payee;
If the recipient of rent has no Permanent Account Number Tax is to be deducted at the rate of 20%
CBDT have made clarification vide their Circular No 718 dated 22nd August, 1995 as under:
a. If the tenant have paid non-refundable deposit for the purpose of using either land or building, it will be considered as rent and Tax is to be deducted under this section. If the amount of deposit is refundable, no TDS is to be paid under this section, but tax is to be deduct on interest under section 194A.
b. The definition of rent is wide, tax is to be deducted on the payment of ‘where housing charges’.
c. If you have paid rent for storage of goods in Cold Storage, tax is not to be deducted under this section but will be deducted under section 194C.
d. When the tenant is paying the Municipal Tax, Rent of Land with his responsibility, no TDS is required to be made.
e. Part payment for use of land or building will also liable for TDS.
If the payment of rent made in advance then at the time of payment TDS is made. To get the credit of such amount of TDS under section 199, it is difficult that for which year credit is available, for this difficulty CBDT have issued a circular no 5/2001 dated 02/03/2010.
Payee is more than one: We know that the amount of rent exceed Rs.2,40,000 TDS is required. But if the payee is more than one, each payee will get exemption up to Rs.2,40,000. It is advisable to the payee that please make different agreement and not one.
If the building and furniture/fittings are given on rent with different agreement then TDS is to be made on total amount of rent under section 194I.
If the payment of rent is to paid to Government or Autonomic Institution TDS is not required to be made, as per Circular No 699 dated 30.01.1995.
When the space is given on rent for put hoardings, TDS is required to be made, but the owner is charging the rent as advertisement charge, TDS is to be made as per Section 194C and not under this section 194I.
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