12 September 2026 · Ruhu AI
TDS on Rent: 194-I vs 194-IB, Rates, Limits and Due Dates
Rent is the payment businesses get TDS notices about most often, for a simple reason: two different sections cover it, their limits changed recently, and the tenant, not the landlord, carries the compliance burden. This guide sorts out who deducts, under which section, at what rate, and what happens when it is missed. It also covers the change that catches people in the current year: from 1 April 2026, both sections have moved into the new Income-tax Act, 2025.
First, which Act applies to you
The Income-tax Act, 2025 replaced the 1961 Act with effect from 1 April 2026. For TDS on rent that means:
- Rent paid or credited up to 31 March 2026 (including FY 2025-26 returns being filed now, and any past-year notice): the 1961 Act applies, and the sections are 194-I and 194-IB exactly as described below.
- Rent from 1 April 2026 onwards (tax year 2026-27): both provisions have been folded into Section 393(1) of the Income-tax Act, 2025, in its TDS table. The rates and the Rs 50,000 monthly threshold continue unchanged. The paperwork changes more than the substance: the section becomes 393(1), quarterly Form 26Q is replaced by Form 140, the challan-cum-statement Form 26QC is replaced by Form 141, and the new TDS tables use numeric payment codes that must be quoted on challans.
The rest of this guide uses the familiar 1961 numbering, because that is what every form, notice and certificate issued so far carries. Where you are deducting for a period after 1 April 2026, read 194-I and 194-IB as their Section 393(1) entries, and the old forms as their replacements (Form 140 for 26Q, Form 141 for 26QC).
The two sections, in one line each
- Section 194-I applies to businesses and professionals who are required to deduct TDS: companies, firms, and individuals or HUFs whose turnover crossed the tax-audit monetary limits in the preceding year.
- Section 194-IB applies to individuals and HUFs who are not covered above (a salaried person renting a flat, for example) when the monthly rent is high enough.
If you pay rent for your office, shop, godown or machinery through a business entity, you are almost certainly in 194-I territory. If you pay a large personal house rent, look at 194-IB.
Section 194-I: the business tenant
Who deducts. Any person other than an individual or HUF, plus individuals and HUFs whose business turnover or professional gross receipts in the immediately preceding financial year exceeded the Section 44AB(a)/(b) monetary limits (the test is the turnover limit, not whether an audit actually happened).
Threshold. The Finance Act 2025 moved the limit from ₹2,40,000 per year to ₹50,000 per month or part of a month, effective 1 April 2025. The shift from a yearly to a monthly test matters: a single month of high rent can now trigger deduction even if the annual total is modest.
Rates.
- 10% for land, building, furniture or fittings.
- 2% for plant, machinery or equipment.
No surcharge or cess is added, and the deduction is on the rent excluding GST, provided the GST amount is shown separately in the invoice or agreement.
Mechanics. The tenant needs a TAN, deducts at the time of credit or payment (whichever is earlier), deposits by the 7th of the following month (30 April for March deductions), files quarterly returns in Form 26Q (Form 140 from FY 2026-27), and issues Form 16A to the landlord.
Section 194-IB: the individual tenant
Who deducts. Individuals and HUFs not covered by 194-I, paying rent above ₹50,000 per month or part of a month to a resident.
Rate. 2% of the rent. The rate was reduced from 5% with effect from 1 October 2024, so agreements and checklists that still say 5% are out of date.
The mechanics, simplified. No TAN is needed. The deduction happens once for the year: in the last month of the financial year, or the last month of the tenancy if you vacate earlier. Payment and reporting happen together through challan-cum-statement Form 26QC within 30 days from the end of the month of deduction, and the tenant issues Form 16C to the landlord.
Situations that trip people up
- Landlord is a non-resident. Neither section applies. TDS falls under Section 195, at the rates applicable to the landlord's income, with no monthly threshold. Many tenants discover this only during a scrutiny. If your landlord is an NRI, take advice before the first payment.
- Two co-owners. The threshold applies per landlord. Rent of ₹80,000 paid equally to two co-owners is ₹40,000 each, below the monthly limit for both sections, provided each co-owner's share is definite and ascertainable (separate agreements or receipts evidence this).
- Landlord without PAN. Deduct at 20% under Section 206AA (capped at the last month's rent in 194-IB cases).
- Security deposits. A refundable deposit is not rent, so no TDS. A non-refundable deposit or one adjusted against rent is rent.
- Rent includes GST. Deduct on the base rent when GST is separately stated, not on the gross.
- Machinery hire billed as "rent". It is still 194-I, but at 2%, not 10%. Classifying it right saves the landlord working capital.
What missing it costs
The tenant who should have deducted but did not faces, on the same missed amount:
- Interest under Section 201(1A): 1% per month from the date deduction was due to the date of deduction, then 1.5% per month until deposit.
- Expense disallowance under Section 40(a)(ia) for business tenants: 30% of the rent is disallowed in the year of default, allowed back in the year the TDS is finally deposited. Where the landlord is a non-resident, the disallowance under Section 40(a)(i) is 100%, not 30%.
- Late filing fee under Section 234E of ₹200 per day (capped at the TDS amount) for delayed returns or 26QC, plus possible penalty under Section 271H.
A worked example
A private limited company pays office rent of ₹65,000 per month from April 2025. Under 194-I:
| Item | Amount |
|---|---|
| Monthly rent | ₹65,000 |
| TDS at 10% | ₹6,500 |
| Paid to landlord | ₹58,500 |
| Deposited by the 7th of the next month (30 April for March) | ₹6,500 |
| Annual TDS in landlord's 26AS | ₹78,000 |
If the company forgets for the whole year and is caught in March 2027: interest of roughly ₹14,500 to ₹17,000 depending on dates, 30% of ₹7,80,000 (₹2,34,000) disallowed in the computation for FY 2025-26, and the late fee meter running per return. The ₹78,000 itself was never the company's money; the cost of not routing it correctly is what hurts.
Frequently asked questions
Do Sections 194-I and 194-IB still exist? For periods up to 31 March 2026, yes, and they govern those years' compliance and any notices about them. From 1 April 2026 the same rules live in Section 393(1) of the Income-tax Act, 2025. The substance is unchanged; the section number and the forms are new.
Is TDS on rent deducted on GST too? No, when the GST component is separately shown, deduct on the rent alone.
I am salaried and pay ₹55,000 rent. Do I really need to deduct TDS? Yes: 2% deducted in the last month of the year (or tenancy), deposited within 30 days of that month's end through the challan-cum-statement (Form 26QC for deductions up to 31 March 2026, Form 141 after). No TAN needed.
What if my landlord refuses to share PAN? Deduct at 20% under Section 206AA. The higher deduction usually produces the PAN quickly.
My landlord is an NRI. Can I use 194-IB? No. Payments to a non-resident landlord fall under Section 195, with no threshold. Get the rate right before the first payment, ideally with professional advice.