TDS on Rent under Section 194I for FY 2025-26: The ₹50,000-a-Month Limit, 2% and 10% Rates, and 194-IB for Individual Tenants

For years the rent threshold under Section 194I sat at ₹2.4 lakh a year — ₹20,000 a month — which meant almost every business tenant in the Tricity was deducting TDS on almost every lease. The Finance Act 2025 changed that from 1 April 2025. The test is now ₹50,000 per month, or part of a month — ₹6 lakh for a full year — and a large share of small commercial leases have simply dropped out of the section.

That relief has created its own confusion: tenants who stopped deducting on leases that still qualify, landlords whose Form 26AS suddenly shows nothing, and individual tenants who do not realise that a different section, 194-IB, still catches them at ₹50,000 a month. This is the FY 2025-26 position in full.

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The limit for FY 2025-26

Test	Threshold	Effect
Rent paid or credited to a landlord	More than ₹50,000 in any month or part of a month	Deduct on the whole rent for the year, not just the excess

The threshold is monthly, not annual. A lease at ₹55,000 a month for six months — ₹3.3 lakh in the year, below the old annual limit — is fully within 194I because each month exceeds ₹50,000. Conversely, a lease at ₹45,000 a month for twelve months, ₹5.4 lakh in the year, is outside the section entirely: no month crosses ₹50,000. Last year that tenant deducted 10% on all of it.

“Rent” for this purpose means any payment for the use of land, a building (including a factory building), machinery, plant, equipment, furniture, or fittings — under a lease, sub-lease, tenancy, or any other arrangement, and whether or not the tenant owns the asset being used.

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The rates

Asset rented	Rate
Plant, machinery, or equipment	2%
Land, building, factory building, furniture, or fittings	10%
Landlord has not furnished PAN (Section 206AA)	20%

Where a single agreement covers a furnished office — building plus furniture — the whole rent is at 10%. Where the landlord separately invoices for equipment, that component is at 2%. The base is the rent excluding GST, provided GST is shown separately on the invoice or agreement.

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Who has to deduct

Every company, firm, LLP, trust, and cooperative society paying rent to a resident must deduct under 194I. Individuals and HUFs must deduct only if their business turnover exceeded ₹1 crore, or professional receipts exceeded ₹50 lakh, in the preceding financial year — the tax-audit test.

An individual or HUF outside that test who pays rent of more than ₹50,000 a month falls under Section 194-IB instead. Three differences matter:

	Section 194I	Section 194-IB
Who	Businesses, and audited individuals/HUFs	Individuals and HUFs not liable to audit
Rate	10% (building) / 2% (equipment)	2% — reduced from 5% with effect from 1 October 2024
When	Every month, at credit or payment	Once — in the last month of the year, or the last month of the tenancy if earlier
How	Deposit by the 7th; quarterly Form 26Q; Form 16A	Deposit with challan-cum-statement Form 26QC within 30 days of the month of deduction; Form 16C to the landlord
TAN	Required	Not required — PAN-based

A salaried professional renting a ₹60,000-a-month flat is a 194-IB deductor: 2% of ₹7.2 lakh, ₹14,400, deducted from the March rent and deposited through 26QC by 30 April. Most such tenants have no idea the obligation exists until the landlord’s scrutiny notice — or their own — arrives.

Rent paid to a non-resident landlord is under neither section. It falls under Section 195 at the rates applicable to the NRI, with Form 27Q, and a lower-deduction certificate under Section 197 is the landlord’s route to reducing it.

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The cases that go wrong

Co-owned property. Where the property has more than one owner and their shares are definite and ascertainable, the ₹50,000 test applies to each co-owner’s share separately. Rent of ₹90,000 a month to two co-owners with equal shares is ₹45,000 each — below the threshold for both, and no TDS is due. The agreement and the payment must actually reflect the split; a single payment to one owner “on behalf of” both does not.

Security deposit. A refundable deposit is not rent and carries no TDS. A deposit that is adjusted against rent, or is non-refundable, is rent when adjusted, and TDS is due at that point.

Advance rent. Deduct when the advance is paid or credited, not when the months it covers arrive.

Composite charges. Maintenance, common-area charges, and utilities billed by the landlord as part of the rent are rent. Billed separately by a maintenance agency, they are a contract payment under 194C, if anything.

Hotel accommodation. A regular arrangement with a hotel for rooms — for visiting staff, say — is rent under 194I. Ad-hoc bookings are not.

Rent paid through a broker or property manager. TDS is on the payment to the landlord’s account, at the landlord’s PAN, regardless of who collects it.

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When to deduct, deposit, and file

Step	Section 194I
Deduct	At credit of the rent to the landlord’s account or at payment, whichever is earlier
Deposit	By the 7th of the following month; March deductions by 30 April
Return	Form 26Q quarterly — 31 July, 31 October, 31 January, 31 May
Certificate	Form 16A within 15 days of the return due date

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Three worked examples

Example 1 — Out of the section. A partnership firm rents a shop at ₹45,000 a month. No month exceeds ₹50,000. No TDS under 194I for FY 2025-26, though last year’s ₹2.4 lakh annual limit would have caught it. The firm should stop deducting; the landlord should expect a nil 26AS.

Example 2 — In the section. A private limited company rents an office at ₹60,000 a month plus GST shown separately. Every month exceeds ₹50,000. TDS at 10% on ₹60,000 each month, ₹6,000, deposited by the 7th of the next month; ₹72,000 for the year on ₹7.2 lakh of rent.

Example 3 — Co-owners. The same company rents a floor for ₹95,000 a month from a husband and wife who own it in equal shares, with the agreement naming both and payment split to two accounts. Each receives ₹47,500 a month — below ₹50,000. No TDS. Had the agreement named the husband alone, TDS at 10% would be due on the full ₹95,000.

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What a miss costs

Default	Consequence
Failure to deduct	Interest at 1% per month from the date deductible to the date deducted
Deducted but not deposited	Interest at 1.5% per month to the date of deposit
Late Form 26Q	₹200 per day under Section 234E, capped at the TDS amount
Non-filing beyond a year	Penalty of ₹10,000 to ₹1,00,000 under Section 271H
Expense disallowance	30% of the rent disallowed under Section 40(a)(ia) in your own income computation

On a ₹7.2 lakh annual lease, the TDS that was missed is ₹72,000. The disallowance is ₹2.16 lakh added to your taxable profit. The landlord, meanwhile, files a return showing ₹7.2 lakh of rent against a 26AS showing nothing from you — and the department now reads both sides. Our income-tax notice reply service sees the landlord’s half of that mismatch regularly.

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Frequently asked questions

What is the TDS limit on rent for FY 2025-26?

Rent exceeding ₹50,000 in any month or part of a month — ₹6 lakh for a full year — up from ₹2.4 lakh a year previously. The test is monthly: a lease at ₹45,000 a month is outside 194I even though the annual total exceeds the old limit.

What is the TDS rate on rent?

10% on land, buildings, furniture, and fittings; 2% on plant, machinery, and equipment; 20% if the landlord has not furnished a PAN. Individual tenants not liable to audit deduct under Section 194-IB at 2%.

I am a salaried person paying ₹60,000 a month rent. Do I have to deduct TDS?

Yes, under Section 194-IB at 2% — once a year, from the last month’s rent (or the last month of the tenancy), deposited with Form 26QC within 30 days of the end of that month. You do not need a TAN, and you must give the landlord Form 16C.

Is TDS deducted on the GST charged on rent?

No, provided GST is shown separately. Deduct on the rent excluding GST. If the agreement states a single inclusive figure, deduct on that figure.

The property has two owners. Does the ₹50,000 limit apply to each?

Yes, where the co-owners’ shares are definite and the rent is actually paid to each separately. Rent of ₹90,000 a month split equally is ₹45,000 each and no TDS is due. If the agreement names one owner or payment goes to one account, the whole rent is tested against that owner.

Is TDS deducted on the security deposit?

Not on a refundable deposit. A deposit that is adjusted against rent, or is non-refundable, becomes rent at the point of adjustment and TDS is due then.

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Related reading

• TDS Rate Chart FY 2025-26 (AY 2026-27)
• TDS on Contractors — Section 194C for FY 2025-26
• Outsourced Accounting & Bookkeeping — TDS deposited before the 7th, every month
• NRI & FEMA Taxation — rent and property payments to non-resident landlords
• Income Tax Notice Reply & Representation