TDS on Rent India: Section 194I vs 194IB Complete Guide 2026

TDS on rent is one of those compliance requirements that looks simple until you file an incorrect return — or receive a demand notice for a missed deduction. Two separate sections of the Income Tax Act, 1961 govern rent TDS in India: Section 194I and Section 194IB. They apply to entirely different categories of tenants, with different thresholds, rates, and filing mechanics. Mix them up and every rent payment made during the year could be assessed as a TDS default.

This guide covers both sections completely, updated for FY 2026-27, including the October 2024 rate change under Section 194IB that many tenants are still getting wrong.

Section 194I vs Section 194IB: The Core Distinction

The single most important question before deducting any TDS on rent is: which section applies to you?

Section 194I applies to any person — a company, LLP, partnership firm, or HUF required to get a tax audit under Section 44AB — who pays rent exceeding ₹2,40,000 in a financial year. If you run a private limited company, an LLP, or any business whose accounts are audited under Section 44AB, this is your section. Deductions are made at each payment.

Section 194IB applies to individuals and HUFs who are not liable to tax audit — typically those whose business turnover is below ₹1 crore (₹50 lakh for professionals under Section 44ADA). The trigger here is different: monthly rent exceeding ₹50,000. An annual total crossing ₹6 lakh is irrelevant under this section; only the per-month figure matters.

TDS Rates Under Section 194I — And What "Rent" Covers

For businesses and companies paying rent under Section 194I, the rates for FY 2026-27 are:

• Land, building, furniture, or fittings: 10%
• Plant, machinery, or equipment: 2%

The 10% rate covers your standard commercial office lease. The 2% rate applies when you rent machinery for production, a crane for a project site, or equipment under an operating lease.

Threshold logic matters from day one. The ₹2,40,000 threshold is tested against the expected annual rent, not the amount paid so far. If you sign a lease in August 2026 at ₹28,000/month and expect to pay for 9 months (₹2,52,000), you cross the threshold — and TDS must be deducted from the very first payment.

Practical example: Your company signs a lease for office space in Pune at ₹38,000/month. Annual rent = ₹4,56,000. Rate = 10%. Monthly TDS deduction = ₹3,800. You deposit this to the government by the 7th of the following month and file a quarterly return on Form 26Q. Your landlord receives ₹34,200/month in hand, and the ₹3,800 monthly TDS reflects in their Form 26AS as advance tax credit against their total tax liability.

What counts as "rent" under Section 194I: The Act defines rent broadly — any payment for the use of land, building, plant, machinery, furniture, or fittings, whether the payment is called rent, lease, sub-lease, or any other name. If your landlord bundles a "maintenance charge" or "service charge" that is actually consideration for use of the property, TDS applies to that component too. Only charges that are genuinely separate service fees — housekeeping, security staff, utilities billed at actuals — fall outside the definition.

Section 194IB: The Individual Tenant's Obligations

The ₹50,000/Month Test

If you are an individual proprietor, a salaried professional renting residential accommodation, or a small HUF below the tax audit threshold, Section 194IB governs your TDS on rent. The question is simple: does your monthly rent exceed ₹50,000?

• Rent of ₹50,000/month exactly: No TDS required
• Rent of ₹50,001/month: TDS required on the full amount
• Rent of ₹65,000/month: TDS on the full ₹65,000

For tenants in Tier-1 cities, this threshold is routinely crossed — for both commercial space and mid-to-premium residential properties.

The Rate Change: From 5% to 2% Effective October 1, 2024

Finance (No. 2) Act, 2024 reduced the TDS rate under Section 194IB from 5% to 2% with effect from October 1, 2024. If your accounting software still shows the old 5% rate, correct it immediately — this affects both ongoing deductions and any FY 2025-26 returns you are now filing.

For AY 2026-27 returns being filed this July: TDS deducted between April 2025 and September 2025 was correctly deducted at 5%. Amounts from October 2025 onwards should be at 2%. If Form 26QC was filed with a blended or incorrect rate, a rectification may be needed before you file the ITR.

No PAN = 20% deduction: If your landlord does not provide their PAN, you must deduct TDS at the higher of 20% or the applicable rate. This provision prevents landlords from hiding rental income. Always collect the PAN before the first rent payment; amending a filed Form 26QC later is possible but time-consuming and attracts additional scrutiny.

When Exactly Does Deduction Happen Under Section 194IB?

This is the most misunderstood rule in this section. Under Section 194IB, deduction does not happen monthly. It happens once, at the time of:

• Credit of rent for the last month of the financial year (typically March), OR
• The last payment of rent during the tenancy if it ends before March

Whichever event occurs first governs the timing.

Full-year tenant: You pay ₹70,000/month from April 2026 to March 2027. TDS is deducted in March 2027 on the last month's payment. Annual rent = ₹8,40,000. TDS at 2% = ₹16,800. This full ₹16,800 is deducted from the March 2027 rent payment, reducing it to ₹53,200.

Mid-year departure: Your tenancy ends in October 2026. Deduct TDS at the time of the last rent payment in October 2026. File Form 26QC by November 30, 2026.

Important: If the final month's rent is lower than the total TDS owed for the year — which can happen when advance rent was paid earlier — you deduct the entire TDS shortfall from whatever final payment is available. The law does not cap deduction at the final payment amount; it merely specifies the timing.

Filing — Form 26Q Quarterly vs Form 26QC One-Time

Section 194I: Quarterly Returns on Form 26Q

Businesses deducting TDS under Section 194I must follow this sequence:

1. 1Obtain a TAN (Tax Deduction Account Number) via Form 49B before making any deduction
2. 2Deduct TDS at each rent payment
3. 3Deposit to the government by the 7th of the following month (exception: March TDS is due by April 30)
4. 4File Form 26Q quarterly on the TRACES portal:

- Q1 (April–June 2026): Due July 31, 2026

- Q2 (July–September 2026): Due October 31, 2026

- Q3 (October–December 2026): Due January 31, 2027

- Q4 (January–March 2027): Due May 31, 2027

1. 1Issue Form 16A (TDS certificate) to your landlord within 15 days of the quarterly return due date

Section 194IB: Form 26QC — No TAN Needed

Form 26QC is a challan-cum-statement: it simultaneously deposits the tax and files the return. No TAN is required — your PAN is sufficient.

Step-by-step filing process:

1. 1Log in to the TRACES portal (www.tdscpc.gov.in) or the TIN-NSDL website
2. 2Navigate to "TDS on Rent of Property" → "Online Form 26QC"
3. 3Enter: your PAN, landlord PAN, property address, rent period, total rent paid, TDS amount
4. 4Make payment via net banking (select Challan 281)
5. 5Save the acknowledgement number — this is your proof of compliance
6. 6File by: 30 days from the last day of the month of deduction (March deduction = April 30 deadline)
7. 7After processing, download and issue Form 16C to your landlord within 15 days of the due date

Critical timing note: Form 26QC's due date is not July 31 (the ITR deadline). It is a fixed 30-day window from the month of deduction. Many tenants file late in June or July when they remember it during ITR preparation — but if TDS was deducted in March, the deadline was April 30. The ₹200/day late fee starts immediately.

Penalties for Non-Compliance

Interest under Section 201(1A):

• 1% per month (or part thereof) for failure to deduct TDS
• 1.5% per month for failure to deposit TDS after deducting it

If your company paid ₹5 lakh in annual rent, deducted nothing, and gets caught two years later, the interest alone on the ₹50,000 TDS liability is ₹50,000 × 1% × 24 months = ₹12,000 — before any penalties.

Late filing fee under Section 234E: ₹200 per day from the due date, capped at the TDS amount. On a ₹15,000 TDS liability, a 75-day delay eats the entire tax amount again in fees.

Penalty under Section 271H: ₹10,000 to ₹1,00,000 if the return is not filed within one year of the due date.

Short deduction due to wrong PAN: If your landlord gave you a wrong PAN, the TDS credit does not appear in their Form 26AS. You, the tenant, are treated as the defaulter — not the landlord. Verify PAN accuracy using the "Know Your PAN" utility on the Income Tax portal before filing.

Common Mistakes CAs See Every Year

1. A company using Section 194IB: Section 194IB cannot be used by companies, LLPs, or firms. If a company deducts under 194IB (filing Form 26QC without a TAN), it creates a structural compliance gap — the TDS should have flowed through Form 26Q with a TAN. This surfaces during assessment.

2. Testing only past payments against the ₹2.4 lakh annual threshold: You must project the expected annual rent and test from the first payment. A ₹25,000/month lease signed in May 2026 — with 11 months remaining — will generate ₹2,75,000 in annual rent, crossing the threshold. Deduct from the May payment itself.

3. Still using 5% for Section 194IB payments from October 2024 onwards: The Finance (No. 2) Act, 2024 reduced the rate to 2% from October 1, 2024. Any TDS deduction at 5% after that date is an overpayment. A refund can be claimed, but it requires filing a correction return on TRACES.

4. Treating furnished office fittings under Section 194I at 2%: The 2% rate under Section 194I applies specifically to plant and machinery. Furniture, fixtures, and fittings in a commercial lease are taxed at 10%, identical to the building component. If your lease separately charges a "furniture rental," that component attracts 10%, not 2%.

5. Missing the 30-day window for Form 26QC: The most common Section 194IB error. The deadline is 30 days from the last day of the month of deduction — April 30 for March, May 31 for April. This is not negotiable and does not align with ITR or GST deadlines.

6. Ignoring co-ownership scenarios: If a property has two co-owners and the rent is formally split between them, the ₹2.4 lakh threshold is tested per owner, not on the aggregate. If each owner's share is below ₹2.4 lakh, Section 194I may not apply — but this requires documented evidence: a registered lease agreement that names both landlords and specifies the split, or separate receipts from each co-owner.

Key Takeaways

• Section 194I governs businesses, companies, and audit-liable HUFs: threshold ₹2.4 lakh/year; rates 10% for land/building/furniture and 2% for plant/machinery; TAN required; quarterly Form 26Q returns.
• Section 194IB governs individuals and small HUFs: threshold ₹50,000/month; rate 2% from October 1, 2024; PAN sufficient; deduct once at year-end or tenancy-end; Form 26QC within 30 days.
• No landlord PAN means 20% TDS obligation — collect it before the tenancy begins, and verify it on the Income Tax portal.
• Form 26QC is due 30 days from the end of the deduction month — not the July 31 ITR deadline.
• Furniture and fittings attract 10% under Section 194I; only plant and machinery attract 2%.
• TDS certificates must be issued to the landlord: Form 16A for Section 194I deductions, Form 16C for Section 194IB deductions.

How corpus Helps

Managing TDS on rent across multiple clients or office locations means tracking different sections, thresholds, and rate histories for each tenancy agreement. corpus handles this automatically: set up each rental arrangement with the applicable section, and corpus computes the correct TDS rate — flagging the 2% versus 10% distinction for different property types, calculating the one-time year-end deduction amount for Section 194IB tenants, and sending Form 26QC deadline alerts 10 days before the 30-day window closes. CA firms using corpus get a consolidated TDS compliance calendar across all clients — no deadline slips, and every Form 16C gets issued on schedule.

Your next rent payment is a compliance opportunity. Get the section, rate, and due date right — and let corpus keep track so you never have to.