TDS on rent: Sections 194-I and 194-IB explained
Two different sections govern TDS on rent depending on who is paying, and both have been amended recently. This is how they differ and what each requires.
TDS on rent falls under one of two sections. Section 194-I applies to most business payers and to individuals and HUFs subject to tax audit. Section 194-IB applies to individuals and HUFs not subject to tax audit who pay rent above the monthly threshold, and requires no TAN.
Who must deduct TDS on rent?
Not every tenant deducts tax on rent. Whether you must, and under which section, depends on who you are rather than on how much the rent is — though the amount then determines whether the threshold is crossed.
The dividing line is tax audit. A person carrying on business or profession whose accounts are subject to audit under Section 44AB, and any company, firm or other entity, deducts under Section 194-I. An individual or Hindu Undivided Family not subject to tax audit — which covers the great majority of ordinary salaried tenants renting a home — falls under Section 194-IB instead, and only where the rent exceeds the monthly threshold that section sets.
This is genuinely one of the most misunderstood areas in Indian personal taxation, largely because the two sections use different thresholds, different rates, different frequencies of deduction and different compliance mechanics. Establishing which applies to you is the first step and it determines everything that follows.
- Tax audit status is the dividing line. Not the amount of the rent.
- Businesses and audited individuals use 194-I. Companies, firms and entities too.
- Ordinary individual tenants use 194-IB. And only above the monthly threshold.
The two sections that apply
They differ in almost every operational respect, which is why conflating them causes so much trouble.
Section 194-I: businesses and audits
Section 194-I applies to any person other than an individual or HUF not subject to tax audit. It requires deduction at the time of credit or payment, whichever is earlier, which in practice means monthly for a monthly rent. The rate differs by what is being rented: a lower rate applies to plant and machinery, and a higher rate to land, building, furniture and fittings.
Deduction under 194-I requires a TAN — a Tax Deduction and Collection Account Number — which the deductor must obtain. Tax deducted is deposited by the seventh of the following month, and quarterly TDS returns are filed, from which the Form 16A certificate is generated for the landlord.
Section 194-IB: individuals and HUFs
Section 194-IB was introduced to bring high-value residential rent paid by ordinary individuals into the net without imposing full TDS compliance on them. It applies to an individual or HUF not subject to tax audit who pays rent exceeding the prescribed monthly threshold.
The mechanics are deliberately lighter. No TAN is required — deduction is made against the deductor’s PAN. Deduction is made once a year rather than monthly: at the time of payment for the last month of the financial year, or the last month of the tenancy if it ends earlier. It is deposited using a challan-cum-statement in Form 26QC within thirty days from the end of the month in which deduction was made, and the tenant issues Form 16C to the landlord.
Current rates and thresholds
The 194-IB rate was reduced to 2 per cent with effect from 1 October 2024, and the 194-I threshold was raised by the Finance Act 2025 — both changes are recent enough that older guidance online still states the previous figures.
| Aspect | Section 194-I | Section 194-IB |
|---|---|---|
| Who deducts | Any person other than an individual or HUF not subject to tax audit | Individual or HUF not subject to tax audit |
| Threshold | Annual rent above the prescribed limit, raised by the Finance Act 2025 | Monthly rent above ₹50,000 |
| Rate | 10% on land, building, furniture and fittings; 2% on plant and machinery | 2% following the reduction with effect from 1 October 2024, from the earlier 5% |
| Frequency | At credit or payment, whichever is earlier — effectively monthly | Once a year, in the last month of the year or of the tenancy |
| TAN required | Yes | No — deduct against PAN |
| Deposit | By the 7th of the following month | Form 26QC within 30 days from the end of the month of deduction |
| Return | Quarterly TDS return | No separate return; Form 26QC serves as the statement |
| Certificate to landlord | Form 16A | Form 16C |
How to deposit and file the TDS
Five steps. Step two is the one that costs money when skipped.
Penalties for non-deduction
Failing to deduct, or deducting and failing to deposit, carries consequences on several fronts. Interest runs on the amount — at one rate for the period from when tax should have been deducted until it was, and at a higher rate for the period from deduction until deposit. A late fee applies for delayed filing of the statement, and a separate penalty may be levied for failure to deduct or to file.
For a payer claiming rent as a business expense there is a further consequence: expenditure on which tax was required to be deducted and was not may be disallowed in part when computing taxable income, which can cost more than the tax itself.
The particular trap under 194-IB is its once-a-year rhythm. A tenant who is unaware of the obligation through the year discovers it, if at all, at the end — by which time the deduction should already have been made from a rent payment that has been paid in full. Recovering it from the landlord after the event is awkward and often unsuccessful, and the tenant remains liable. If you are near the threshold, work out your position at the start of the tenancy rather than in March.
- Interest at two different rates. For non-deduction and for late deposit.
- Late fee and penalty for the statement. Separate from the interest.
- Disallowance of expenditure. Where the payer claims the rent as a business expense.
- 194-IB’s annual timing is the trap. Establish your position in April, not in March.