TDS on Rent Under Section 194-I: Business Tenant Compliance Guide for AY 2026-27
TL;DR
- Section 194-I applies to businesses, professionals subject to tax audit, and companies paying annual rent above Rs. 2.40 lakh.
- TDS is 10% on rent for land or building (including furniture and fittings) and 2% on rent for plant, machinery, or equipment.
- A TAN is mandatory; tenants deduct at the time of credit or payment, whichever is earlier.
- TDS is deposited monthly by the 7th of the following month (30 April for March) and reported in quarterly Form 26Q.
- TDS certificate Form 16A is issued to the landlord every quarter.
What this means in plain terms
Section 194-I is the original rent TDS provision and applies to businesses and professionals whose accounts must be audited under Section 44AB. If your firm rents an office, warehouse, factory floor, or machinery and pays more than Rs. 2.40 lakh in a financial year, you become a tax deductor.
Unlike the lighter Section 194-IB (designed for salaried individuals), Section 194-I expects full TAN-based compliance: monthly TDS payment challans, quarterly Form 26Q filing, and quarterly Form 16A certificates. For startups and small businesses, this is often the first compliance burden they encounter after taking an office on lease.
When Section 194-I applies
Who is the deductor
Any person other than an individual or HUF (not subject to tax audit) is covered. So all companies, firms, LLPs, trusts, and audited individuals and HUFs deduct TDS under Section 194-I. Non-audited individuals fall under Section 194-IB instead.
The Rs. 2.40 lakh annual threshold
The threshold is Rs. 2,40,000 in aggregate rent paid or payable in a financial year to a single landlord. Even Rs. 21,000 a month (Rs. 2,52,000 annually) breaches this.
What counts as rent
Lease rentals for buildings, land, furniture, equipment, plant, and machinery are all covered. Service fees paid to a serviced office or co-working operator may also fall under Section 194-I depending on the agreement structure.
TDS rates and timing
Rate of TDS
10% applies to rent for land, building, furniture, or fittings. 2% applies to rent for plant, machinery, or equipment. If the same agreement bundles a building with machinery, both rates apply on respective components.
When to deduct
At the time of credit to the landlord's account or at the time of payment, whichever is earlier. So even if rent is accrued in books but not yet paid, TDS must be deducted.
Where PAN is not furnished
Section 206AA increases the TDS rate to 20% if the landlord does not furnish PAN. Many small property owners forget this; tenants need to confirm PAN early.
Compliance calendar
Monthly TDS deposit
TDS deducted in a month must be deposited by the 7th of the next month using challan ITNS-281. For March deduction, the due date is 30 April.
Quarterly Form 26Q
Form 26Q (TDS return for non-salary payments) is filed quarterly: 31 July (Q1), 31 October (Q2), 31 January (Q3), and 31 May (Q4). Filing happens on the TRACES portal.
Quarterly Form 16A
After Form 26Q processing, the deductor downloads Form 16A from TRACES and issues it to the landlord within 15 days of the quarterly filing deadline.
A real example
Sneha, 36, runs a Rs. 1.5 crore turnover consulting firm in Mumbai. The firm rents a 1,200 sq ft office at Bandra Kurla Complex for Rs. 75,000 per month from landlord Anjali.
Here is the TDS workflow:
- Annual rent = Rs. 75,000 x 12 = Rs. 9,00,000. Above the Rs. 2.40 lakh threshold.
- TDS rate is 10% (building rent). Monthly TDS = Rs. 7,500.
- Sneha's firm pays Anjali Rs. 67,500 monthly and deposits Rs. 7,500 to the government via ITNS-281 by the 7th of the next month.
- Annual TDS = Rs. 90,000.
- Quarterly, the firm files Form 26Q on TRACES and issues Form 16A to Anjali.
Anjali sees the Rs. 90,000 in her Form 26AS for AY 2026-27 and uses it to offset her tax liability. The firm's compliance is complete because TDS was deducted timely, deposited monthly, and reported quarterly.
What to do this week
- Check whether your firm's annual office rent crosses Rs. 2.40 lakh; if yes, register for a TAN if not already done.
- Verify the landlord's PAN to avoid the 20% rate under Section 206AA.
- Set up monthly TDS deposit reminders for the 7th of each month.
- Schedule quarterly Form 26Q filing and Form 16A issuance into your compliance calendar.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
How is Section 194-I different from Section 194-IB?
Section 194-I applies to businesses, audited individuals/HUFs, and companies; TDS is 10% (or 2%) with TAN-based monthly compliance. Section 194-IB applies to individuals/HUFs not subject to audit; TDS is 5%, deducted once a year, no TAN needed.
Does GST on rent affect TDS computation?
No. TDS is deducted on the rent component only, not on GST. If rent is Rs. 1,00,000 plus 18% GST, TDS is deducted on Rs. 1,00,000.
Are advance rent and security deposit taxed?
Advance rent is treated as rent for the year it pertains to and TDS applies accordingly. Refundable security deposits are not rent and TDS does not apply.
What happens if TDS is deducted but not deposited?
Interest at 1.5% per month under Section 201(1A) plus penalty under Section 271C (up to the amount of tax) and possible prosecution under Section 276B. This is taken very seriously by the department.
Can rent be paid to a partnership firm without TDS?
No. Section 194-I covers all resident landlords including partnership firms, LLPs, and companies. The Rs. 2.40 lakh annual threshold still applies.
What about co-working spaces and shared offices?
If the arrangement is in the nature of rent, Section 194-I applies. If it is a service contract (housekeeping, internet, conferencing), Section 194-C or 194-J may apply instead. Read the agreement carefully.
Can the landlord apply for a lower TDS certificate?
Yes, under Section 197. If the landlord's expected total tax liability is lower than the TDS implied at 10%, they can apply through Form 13 on TRACES to get a lower-deduction or nil-deduction certificate.
Sources
- https://incometax.gov.in
- https://contents.tdscpc.gov.in
- https://www.tin-nsdl.com
- https://finmin.nic.in
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
