TDS on Rent: Section 194-I and 194-IB Explained (2026-27)

Which section applies to you

TDS on rent trips people up because there are two separate provisions, and which one applies depends on who is paying, not what is being rented. Get this right first and the rest follows.

• Section 194-I applies to businesses and anyone whose accounts are subject to a tax audit under the renumbered equivalent of Section 44AB. Companies, firms, and larger proprietors and professionals fall here.
• Section 194-IB applies to individuals and HUFs who are not under tax audit, typically salaried tenants and small proprietors, when they pay rent above a monthly threshold.

Note that rates and thresholds are set by the annual Finance Act and can change. The figures below reflect the position for 2026-27; always confirm the current rate before you deduct, or let our TDS compliance service handle it.

Section 194-I: for businesses

If you run a business that is audited and you pay rent, Section 194-I requires you to deduct TDS. The rate depends on what you are renting:

The threshold, raised by Budget 2025 and maintained since, is ₹6 lakh per financial year to a single payee (up from the earlier ₹2.4 lakh). If your total rent to one landlord crosses that in the year, you deduct on the rent. No surcharge or health and education cess is added to these rates. TDS is deducted at the time of payment or credit, whichever is earlier.

If the landlord does not furnish a valid PAN, the rate jumps to 20% under the higher-rate rule. And a genuine, refundable security deposit is not rent, so it does not attract TDS.

Section 194-IB: for individual tenants

Section 194-IB was created so that ordinary salaried tenants paying high rent could comply without the burden of obtaining a TAN and filing quarterly returns. It applies to individuals and HUFs not under tax audit.

The trigger is a monthly rent above ₹50,000. The threshold looks at the rent for any single month, so ₹49,999 a month escapes, while ₹50,001 a month brings that month, and every later month at that level, into the net. The key features:

• Deduct once a year, not monthly, in the last month of the tenancy or the last month of the financial year (usually March), whichever comes first.
• No TAN required. You use your PAN, which is the whole point of this simpler route.
• Deposit via Form 26QC, a challan-cum-statement, within 30 days of the end of the month in which you deducted.
• Issue Form 16C to your landlord as proof, within 15 days of the due date for Form 26QC.

How to deposit and certify

For an individual under 194-IB, the process is designed to be light:

• Deduct the tax in the last month of the tenancy or the financial year.
• File Form 26QC online, a combined challan and statement, within 30 days, paying the tax at the same time.
• Download and hand your landlord Form 16C as their TDS certificate.

For a business under 194-I, TDS is deducted through the normal payroll and vendor process, deposited by the monthly challan, and reported in the quarterly return (Form 26Q, now Form 138 under the new Act for salary and its equivalents for other payments). Late deduction or deposit attracts interest of 1% to 1.5% per month, so timing matters.

Common traps to avoid

A few recurring mistakes cause most rent-TDS problems:

• Splitting a single tenancy to dodge the threshold. If one person is the sole tenant on the lease and flatmates merely reimburse them, the whole rent counts as paid by that tenant, and 194-IB triggers. Structure the lease as a genuine joint tenancy with documented payment splits if you want each share assessed separately.
• Forgetting the landlord's PAN. No PAN means a much higher deduction rate. Collect it before you pay.
• Treating the security deposit as rent. A genuinely refundable deposit is not rent and is not subject to TDS.
• Missing the Form 26QC window. Thirty days from the end of the deduction month is strict, and late filing carries a daily fee.
• Assuming GST is part of rent for TDS. TDS is generally on the rent component, handled correctly by a professional where the invoice includes GST.

Under the Income Tax Act 2025

From 1 April 2026, the new Act restructures all TDS provisions into a single Section 393 with a master table of payment types. Rent is one line in that table. The important reassurance: the substantive rates and thresholds carry forward unchanged, 10% for land and building, 2% for plant and machinery, the ₹50,000 monthly threshold for individuals, and the ₹6 lakh annual threshold for businesses.

What changes is the section number you quote on your challan and TDS return. From April 2026, a deduction that used to cite 194-I or 194-IB references the relevant part of Section 393 with its payment code. Our section mapping guide covers how the old TDS sections fold into 393.

If you deduct rent TDS, whether as a business or an individual landlord's tenant, getting the section, rate and form right the first time is what keeps you clear of notices. Our TDS compliance service manages deduction, Form 26QC or the quarterly return, and the certificate.

Quick answers

Who deducts TDS on rent? Businesses under audit use Section 194-I; individuals and HUFs not under audit use 194-IB. What is the threshold? ₹6 lakh a year for 194-I, ₹50,000 a month for 194-IB. What is the rate? 10% (land/building/furniture) or 2% (plant/machinery) under 194-I; a flat rate for individuals under 194-IB. Do individuals need a TAN? No, they use their PAN and file Form 26QC. Did the new Act change the rates? No, only the section number, now part of Section 393. Rates change with the Finance Act, so confirm the current figure or ask our TDS team.