TDS on Rent: Section 194I vs 194IB — Rates, Limits and Who Pays

If you pay rent in India, you almost certainly have a TDS obligation — but the rate, the threshold, and the exact section that applies depend entirely on who you are and what you are renting. For FY 2026-27, businesses and firms use Section 194I, while salaried individuals and HUFs use Section 194IB. Get this wrong and the Income Tax Department can disallow 30% of your rent deduction and charge interest on top. This guide cuts through the confusion.

Section 194I vs Section 194IB: The Core Difference

The single most important question is: does your business have its accounts audited under Section 44AB? If yes, you fall under Section 194I. If you are a salaried employee, a freelancer whose turnover stays below the audit threshold, or an HUF that is not audited, you fall under Section 194IB. The two sections have different rates, different threshold limits, and different payment timelines.

Section 194I in Detail: For Businesses and Audited Entities

Under Section 194I, TDS must be deducted at the time of credit or payment, whichever is earlier. The ₹2,40,000 annual limit is per payee — not per property. If you rent office space and a parking bay from the same landlord, add both rents together when checking the threshold.

The rates for FY 2026-27 are:

• 10% on rent of land, building, furniture, or fittings
• 2% on rent of plant, machinery, or equipment

If the landlord's PAN is not available, the rate shoots up to 20%. There is no surcharge or cess on TDS under 194I — you deduct the flat statutory rate.

A business can avoid deduction only if the landlord submits Form 15G or 15H (for eligible individuals) or obtains a nil/lower deduction certificate under Section 197 from the Assessing Officer.

Section 194IB in Detail: For Salaried Individuals and Non-Audited HUFs

If you are a salaried person renting out an apartment and paying more than ₹50,000 per month to your landlord, you must deduct TDS under Section 194IB. The trigger is the monthly rent, not annual rent. A tenant paying ₹48,000 a month owes zero TDS; a tenant paying ₹51,000 a month must deduct.

Key practical points:

• You do not need a TAN. You file Form 26QC on the NSDL portal using your PAN and the landlord's PAN.
• TDS is deducted only once in the financial year — typically in March or the last month of the tenancy.
• The amount deducted cannot exceed the last month's rent payment. This is a statutory cap under the section.
• The challan and statement (Form 26QC) must be filed within 30 days from the end of the month in which TDS was deducted.

Worked Example: Salaried Individual Paying ₹60,000/Month Rent

Rajan is a software engineer. He rents a flat in Bengaluru for ₹60,000 per month starting April 2026. His landlord, Mrs. Sharma, has a valid PAN.

Step 1 — Does Section 194IB apply? Yes. Monthly rent of ₹60,000 exceeds ₹50,000. Rajan is not subject to tax audit. Section 194IB applies.

Step 2 — When to deduct? Rajan deducts TDS in March 2027 (the last month of the FY), or in any month he vacates.

Step 3 — Calculate TDS:

• Total rent paid in FY 2026-27: ₹60,000 × 12 = ₹7,20,000
• TDS rate under 194IB: 5%
• TDS amount = 5% × ₹7,20,000 = ₹36,000
• Check the cap: Last month's rent = ₹60,000. TDS of ₹36,000 is less than ₹60,000. Cap does not bite.

Step 4 — Pay and file: Rajan pays ₹36,000 to the government via Form 26QC and deposits only ₹24,000 to Mrs. Sharma in March 2027. He must file Form 26QC within 30 days of March 31, 2027 — i.e., by 30 April 2027. Mrs. Sharma can then claim this TDS credit in her ITR.

What If Rent Is Paid to Multiple Co-Owners?

This is a grey area that trips up many taxpayers. Under Section 194I, if rent is paid to co-owners (say, two brothers who jointly own a property), you check the ₹2,40,000 limit per payee. If each co-owner receives ₹1,50,000 annually, no TDS is required even though total rent is ₹3,00,000 — provided the ownership is clearly documented and rent is separately credited. Under Section 194IB, if the total monthly rent exceeds ₹50,000, the limit applies to the combined payment regardless of co-ownership. Always get a clear rent agreement specifying the ownership ratio.

Common Mistakes People Make

1. Using the wrong section entirely. A salaried person filing Form 26Q (meant for companies and businesses) instead of Form 26QC creates mismatched TDS credit in the landlord's Form 26AS, causing notices for both parties.
2. Not deducting because rent is paid in cash. TDS applies whether rent is paid by cheque, NEFT, or cash. The mode of payment is irrelevant.
3. Ignoring the annual aggregate under 194I. Businesses sometimes check only the monthly amount and miss that 12 months of ₹21,000/month = ₹2,52,000 — which crosses the ₹2,40,000 threshold and makes TDS mandatory from the first payment itself.
4. Forgetting to deduct on advance rent or security deposit treated as rent. If an agreement stipulates that part of the security deposit is adjustable against rent, TDS applies on that portion too when it is so applied.
5. Not issuing Form 16C to the landlord. Under 194IB, you must issue Form 16C (the TDS certificate) to your landlord within 15 days of the due date for filing Form 26QC. Many tenants deduct TDS but never issue this certificate, leaving the landlord unable to claim the credit without approaching the AO.

TDS Returns, Certificates and Penalties at a Glance

For businesses filing quarterly returns, our TDS Return Filing service handles Form 26Q preparation, challan reconciliation, and timely submission so you never face a late-filing fee. For individuals on 194IB, penalties for late filing of Form 26QC are ₹200 per day under Section 234E, capped at the TDS amount itself. Non-deduction attracts interest at 1% per month, and 30% of the rent paid may be disallowed as a business expense under Section 40(a)(ia) — a genuinely painful consequence.

Frequently asked questions

What is the TDS rate on rent for FY 2026-27 under Section 194I?

The rate is 10% for rent of land, building, furniture, or fittings, and 2% for rent of plant, machinery, or equipment. If the landlord does not furnish a PAN, the rate rises to 20%. No surcharge or health and education cess is added to these rates.

I pay ₹55,000 per month rent. Do I need a TAN to deduct TDS?

No. Salaried individuals and non-audited HUFs deduct TDS under Section 194IB and do not need a TAN. You file a challan-cum-statement in Form 26QC on the NSDL TIN portal using your PAN and the landlord's PAN. A TAN is only required under Section 194I, which applies to businesses liable to tax audit.

My office rent is ₹18,000 per month. Does TDS apply?

Under Section 194I, TDS applies only if the annual rent paid to a single payee exceeds ₹2,40,000. Your annual rent is ₹2,16,000, which is below the threshold, so no TDS is required — provided you pay rent to only one landlord and there are no other payments to the same person that would push the aggregate above ₹2,40,000.

What happens if I forgot to deduct TDS on rent for the entire year?

The consequences are serious. The Income Tax Department can charge interest at 1% per month from the date TDS was due to the date it is actually deducted, and a further 1.5% per month from deduction to deposit. Under Section 40(a)(ia), 30% of the rent you paid without TDS can be disallowed as a business expense, increasing your taxable income. You should deposit the TDS immediately and file the relevant form (26Q or 26QC) to minimise ongoing interest and avoid prosecution.

General information for FY 2026-27, not professional advice for your specific case. Rules change — verify against the latest notification or ask a KyaTax expert.
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