Section 194-I TDS on Rent — FY 2025-26 Rates, ₹50k/Month Threshold + 194-I vs 194-IB Comparison

Why Section 194-I matters

Rent is often one of the largest recurring overheads for any SME. Whether leasing a corporate office, factory shed, warehouse, plant + equipment, or office furniture, the cash outflow to landlords adds up quickly — and Section 194-I makes the tenant responsible for withholding tax at source on these payments.

Failure to deduct under Section 194-I triggers:

• Section 201 “assessee in default” status + 18% interest under Section 201(1A) on the shortfall
• Section 40(a)(ia) — 30% of the rental expense disallowed in the tenant’s income computation until the TDS is properly deducted + deposited

For FY 2025-26, the operational burden has reduced because the Finance Act 2025 has repealed Section 206AB (no more compliance-check portal lookups for non-filer landlords). For the broader TDS framework context, see the TDS in India overview.

What 194-I covers

Section 194-I defines “rent” broadly — far wider than a traditional lease for a physical building. TDS under 194-I applies to any payment for the use of:

• Land (vacant plots used for storage, parking, agricultural / industrial purposes)
• Building (commercial office, warehouse, factory building, retail store)
• Land appurtenant to a building
• Machinery (heavy equipment, CNC machines, printing presses)
• Plant (full processing units, server farms, manufacturing lines)
• Equipment (office computers, IT hardware, medical diagnostic machines, copiers)
• Furniture
• Fittings (built-in office fit-outs, modular furniture)

Whether under a lease, sub-lease, tenancy, or “other agreement / arrangement” — all are covered. Ownership by the landlord is not a prerequisite; sub-letting payments from one tenant to another are also within 194-I scope.

Rates — 2% (plant + machinery) vs 10% (land + building + furniture)

The rate split is determined by the nature of the asset rented, not by the legal status of the landlord:

Asset rented	194-I rate
Plant, machinery, equipment	2%
Land, building, furniture, fittings	10%

No surcharge or Health & Education Cess is added to these base rates for resident landlords.

Composite rent — single invoice covering multiple asset categories

A common scenario: a furnished office lease covers the building (10% bucket) + air-conditioning plant (2% bucket) + office furniture (10% bucket) under one composite monthly invoice.

• If the lease clearly itemises the per-component split — apply the corresponding rate to each component (e.g., 10% on the building share, 2% on the AC plant share, 10% on the furniture share)
• If the lease has a single undivided composite amount — the safer position is to apply the higher 10% rate to the entire composite, to avoid short-deduction default exposure

The CBDT has not issued a specific formula for splitting composite rent; the documented basis for the split (lease text, separate addenda for plant + machinery components) is what defends the lower-rate allocation in a scrutiny.

Threshold — ₹50,000 per month or part of a month per landlord (Finance Act 2025)

The Finance Act 2025 restructured the Section 194-I threshold effective 1 April 2025. The earlier framework — ₹2,40,000 aggregate per landlord per FY — was replaced with a monthly trigger: TDS applies if rent for any single month (or part of a month) exceeds ₹50,000 to a single landlord.

Mechanics:

• Monthly rent of ₹40,000 × 12 months = ₹4,80,000 annual → no TDS (no single month exceeds ₹50,000, irrespective of the annual aggregate)
• Monthly rent of ₹55,000 → TDS triggers on each monthly payment
• Monthly rent of ₹60,000 for 4 months + ₹40,000 for 8 months → TDS on the 4 months > ₹50,000; no TDS on the 8 months ≤ ₹50,000
• Part-of-a-month rent (mid-month tenancy start) — apportioned. A ₹70,000 monthly rent prorated to 18 days = ~₹42,000 → no TDS for that part-month

The shift from annual aggregate to monthly trigger means high-volume / low-monthly-rent leases that were previously caught (e.g., ₹25k × 12 = ₹3L > ₹2.4L) are now outside Section 194-I. Conversely, short-tenure high-monthly-rent leases that previously escaped (e.g., 3 months × ₹60k = ₹1.8L < ₹2.4L) are now caught from the first qualifying month.

Per-co-owner threshold testing for joint-ownership properties

If a property is jointly owned, the ₹50,000/month threshold is tested per co-owner, not for the property as a whole.

Worked example: office leased from 2 brothers as 50:50 co-owners, monthly rent ₹80,000:

• Share per co-owner: ₹40,000 per month
• Both shares < ₹50,000/month
• No TDS under 194-I for either share

For this to operationally work, the rent must be paid / credited separately to each co-owner with documentation (lease addendum specifying co-owner shares + separate cheque / NEFT to each PAN). A single composite payment to one co-owner, even with internal split, does not preserve the per-co-owner threshold and TDS applies on the gross.

Who is liable to deduct

Always liable to deduct: Companies, partnership firms, LLPs, trusts, co-operative societies, local authorities — regardless of turnover.

Conditionally liable (Individuals + HUFs): An Individual or HUF carrying on business or profession is required to deduct 194-I only if their accounts were subject to tax audit under Section 44AB in the immediately preceding FY (business turnover above ₹1 crore — extended to ₹10 crore where ≥95% of receipts + payments are in non-cash mode; profession receipts above ₹50 lakh).

A small business below the 44AB audit threshold paying commercial rent of ₹5 lakh annually has zero 194-I obligation — the conditional liability gate has not been crossed.

Personal-use exemption: payments for genuinely personal-use rent (e.g., a non-business individual renting residential premises for own residence) fall under Section 194-IB, not 194-I.

194-I vs 194-IB — commercial vs residential

The two sections cover different categories of tenants + landlords:

Aspect	Section 194-I	Section 194-IB
Target payer	Businesses (companies, firms, tax-audited individuals / HUFs)	Individuals / HUFs NOT subject to tax audit
Nature of rent	Commercial — office, plant, machinery, equipment, building (most use cases)	Residential — for personal use (most use cases)
Threshold	> ₹50,000/month per landlord (Finance Act 2025)	> ₹50,000/month per landlord
TDS rate FY 2025-26	10% (land/building/furniture) or 2% (plant/machinery)	2% (cut from 5% by Finance (No. 2) Act 2024)
TAN / PAN requirement	TAN required; Form 26Q quarterly	PAN-based; Form 26QC (no TAN)
Frequency of deduction	At each payment / credit	Once in the year — last month of FY or last month of tenancy (whichever earlier)
Certificate to landlord	Form 16A (quarterly post Form 26Q processing)	Form 16C (within 15 days of Form 26QC filing)

Post Finance Act 2025, the threshold is identical — ₹50,000 per month for both. The distinction collapsed to two axes: (a) who the deductor is (audited entity vs non-audit individual / HUF), and (b) the rate structure (10% / 2% under 194-I vs single 2% under 194-IB). For salaried individuals claiming HRA exemption and paying rent above ₹50,000/month, the 194-IB obligation sits on the tenant side regardless of the HRA claim — 194-I does not apply because the individual is not a tax-audit subject.

Section 206AB repeal + 206AA continues

Until FY 2024-25, before applying the 194-I rate, the tenant had to check the Income Tax “Compliance Check” portal to verify whether the landlord had filed ITR for the prior FY. Where the landlord was a “specified person” (non-filer + aggregate TDS / TCS ≥ ₹50,000 in the relevant prior year), Section 206AB required deduction at the higher of (twice the normal rate, 5%) — effectively up to 20% on building rent.

The Finance Act 2025 has omitted Section 206AB with effect from 1 April 2025. For FY 2025-26 onwards:

• No “compliance check” portal lookup before applying the 194-I rate
• Standard 2% / 10% applies regardless of the landlord’s ITR-filing history
• Section 206AA continues to apply — landlord without a valid PAN attracts the higher of the prescribed rate or 20%. For building rent, the no-PAN rate is therefore 20% (not 10%); for plant + machinery rent, it is 20% (not 2%). PAN-on-file remains an operational prerequisite before lease signing.

GST exclusion + computation basis

Per CBDT Circular No. 23/2017 dated 19 July 2017, where GST is indicated separately on the rental invoice, TDS under Section 194-I is calculated on the base rental value excluding GST.

Item	Amount
Base rent	₹1,00,000
GST @ 18%	₹18,000
Invoice total	₹1,18,000
194-I TDS base (building, 10%)	₹1,00,000
TDS	₹10,000
Net payment to landlord	₹1,08,000

If the landlord’s invoice does NOT separately indicate GST (composite invoice), TDS is calculated on the gross invoice value.

For the GST-side compliance that determines whether GST is shown separately, see the GST ITC Rules guide.

Compliance mechanics

Once 194-I TDS is deducted:

1. Deposit (Challan ITNS 281) — by the 7th of the following month (March deduction → 30 April)
2. Quarterly Form 26Q — non-salary TDS return. Due dates: Q1 — 31 July, Q2 — 31 October, Q3 — 31 January, Q4 — 31 May
3. Form 16A — issued to the landlord within 15 days of the Form 26Q due date. Downloadable from TRACES once Form 26Q is processed. See Form 16 vs Form 16A reference.
4. Tax audit disclosure — for tenants who are also subject to Section 44AB tax audit, 194-I deductions appear in the Form 3CD Tax Audit Report

For the TRACES portal workflow (Form 16A download, correction statements, defaults), see the TRACES Portal Walkthrough.

Common 194-I mistakes

1. Treating equipment rental as a works contract — hiring a crane / machine with operator can be ambiguous between 194-I (asset rental) and Section 194C (works contract). The line: if control of the asset is handed to the tenant for use, it is 194-I. If the operator + asset together deliver a service result without tenant control, it is typically 194C. See the Section 194C spoke for the works-contract framing.
2. Applying the pre-Finance-Act-2025 ₹2.4L annual aggregate — for FY 2025-26 the test is per-month (₹50,000), not per-FY. Leases with low monthly rent (e.g., ₹40k × 12 = ₹4.8L) are now outside 194-I despite the annual aggregate appearing high.
3. Applying repealed Section 206AB rates in FY 2025-26 — continuing to apply the penal 5%-or-twice-the-rate after the section’s omission. The standard rate applies in all cases for FY 2025-26.
4. Deducting on GST-inclusive total — over-deducting on the GST component. Strip GST when shown separately.
5. Wrong-rate split on composite leases — splitting a composite lease into building + plant components without documented contractual basis. CPC scrutiny commonly disallows the lower-rate portion if undocumented.
6. Personal-use rent under 194-I — for an individual paying residential rent for personal use (not business), 194-I doesn’t apply; 194-IB does (if monthly > ₹50,000). For SMEs that subsidise employee housing, the analysis depends on whether the lease is the SME’s or the employee’s.
7. Missing the no-PAN 20% rate — failing to collect the landlord’s PAN before lease signing and then applying the standard 10% / 2% rate. Section 206AA requires 20% in the no-PAN case.
8. Joint-ownership threshold confusion — testing the ₹50,000/month threshold against the property’s total monthly rent instead of per-co-owner share. Where rent is paid / credited separately to each co-owner with documented split, each share is tested independently against the per-co-owner ₹50k/month threshold.

For the cross-section TDS rate reference, see the TDS Rate Chart FY 2025-26. For end-to-end Form 26Q filing + TRACES reconciliation, see the TDS Return Filing service.