What is professional income under Income Tax?

Professional income is income earned from specialized services requiring skill, expertise, or certification, such as doctors, lawyers, and chartered accountants.

Which professions qualify under Section 44ADA?

Professions like legal, medical, engineering, architecture, accountancy, technical consultancy, interior decoration, and authorized representatives qualify under Section 44ADA if receipts are under ₹50 lakh.

Do all professionals need to file ITR-3?

Yes, professionals earning income under taxable heads must file ITR-3 if they are eligible, except if opting for presumptive taxation under Section 44ADA with receipts under ₹50 lakh.

Understanding TDS on Rent and Section 194I: Limits and Compliance Explained

Tax Deducted at Source (TDS) on rent payments under Section 194I of the Income Tax Act is a fundamental provision ensuring tax transparency and timely collection in India. With the recent changes in threshold limits and rates effective from the financial year 2025-26, it is crucial for both tenants and landlords to understand their rights, responsibilities, and compliance requirements related to TDS on rent.

This article offers a comprehensive guide to Section 194I, practical insights on the limit for TDS on rent, and explains how to navigate TDS compliance efficiently.

What Is Section 194I?

Section 194I governs the deduction of TDS by the tenant who pays rent to a landlord. The main objective is to ensure that rental income is disclosed properly and that tax is withheld at the source of payment. This section applies to rent paid on land, buildings, furniture, and plant or machinery.

The tenant (deductor) is legally obligated to deduct TDS before making the rent payment to the landlord (deductee) if the rent exceeds the prescribed threshold limits.

Threshold Limit for TDS on Rent

One of the most significant updates under Section 194I in 2025 is the enhancement of the threshold limit for TDS deduction on rent payments.

The threshold limit is now Rs. 6 lakh per annum, which translates to Rs. 50,000 per month.
If monthly rent exceeds Rs. 50,000, the tenant must deduct TDS regardless of the total annual rent.
If the monthly rent is below Rs. 50,000, no TDS is required, even if the aggregate annual rent is higher.

This increase in the threshold limit reflects the government's intention to reduce the compliance burden on small taxpayers and align tax provisions with current economic conditions.

Applicable TDS Rates under Section 194I

The rate of TDS deduction depends on the type of asset for which the rent is paid:

Asset Type	TDS Rate
Land, Building, Furniture	10%
Plant, Machinery, Equipment	2%

For example, if a business pays Rs. 60,000 per month as rent on an office building, it must deduct 10% TDS (Rs. 6,000) before making the payment. In contrast, if the payment is for renting machinery, the deduction rate is 2%.

Who Is Required to Deduct TDS Under Section 194I?

Companies, firms, and other non-individual entities must deduct TDS when rent exceeds the threshold.
Individuals or Hindu Undivided Families (HUFs) liable for tax audit must also comply with Section 194I.
However, individuals and HUFs not liable for audit fall under Section 194IB, which addresses TDS on rent paid by small taxpayers and mandates a 5% TDS deduction.

How Is TDS on Rent Deducted and Deposited?

TDS must be deducted at the time of credit or payment of rent, whichever is earlier.
The deducted TDS should be deposited with the government treasury within the prescribed due dates.
The tenant must file the quarterly TDS returns and furnish Form 16A as a TDS certificate to the landlord.
Failure to deduct or deposit TDS timely may attract penalties and interest under Income Tax provisions.

TDS on Rent for Machinery

A notable feature of Section 194I is the separate treatment of rent paid for plant, machinery, and equipment. Despite being rent, these payments attract a lower TDS rate of 2%, recognizing their business utility and recurring nature.

The threshold of Rs. 50,000 per month applies here as well, ensuring that only substantial machinery rent obligations trigger TDS.

Impact of PAN on TDS Deduction

If the landlord does not furnish a valid PAN or Aadhaar, the tenant must deduct TDS at the higher rate of 20% instead of the regular 10% or 2%. This measure is designed to encourage proper documentation and reduce tax evasion.

Therefore, tenants should always verify and record the PAN details of landlords before deducting TDS.

Why Is Section 194I Important?

Ensures transparency in rental income reporting.
Helps the government track and collect tax revenue efficiently.
Protects tenants from liability by ensuring tax compliance at source.
Aids landlords in claiming TDS credits while filing income tax returns.

Practical Tips for Renters and Landlords

Renters should maintain a rent agreement documenting the lease terms and amounts.
Deduct TDS immediately when rent surpasses the monthly threshold of Rs. 50,000.
Deposit TDS promptly and file returns accurately to avoid penalties.
Landlords should verify the TDS deducted and reflect it in their income tax filings.
Both parties should maintain clear communication regarding TDS compliance.

FAQs on TDS on Rent and Section 194I

1. What is Section 194I of the Income Tax Act?

Section 194I mandates the deduction of TDS on rent payments made by a tenant to a landlord on rent of land, building, furniture, or plant/machinery when rent exceeds prescribed thresholds.

2. What is the threshold limit for deducting TDS on rent under Section 194I?

The threshold limit is Rs. 6 lakh per annum or Rs. 50,000 per month. TDS must be deducted if monthly rent exceeds Rs. 50,000.

3. What are the TDS rates under Section 194I for rent?

10% on rent paid for land, building, furniture, or fittings.

2% on rent paid for plant, machinery, or equipment.

4. Are individuals required to deduct TDS under Section 194I?

Individuals liable for tax audit must deduct TDS under Section 194I. Those not liable for audit fall under Section 194IB with a separate 5% TDS provision.

5. What if the landlord does not provide their PAN?

If PAN is not furnished, TDS has to be deducted at a higher rate of 20%.

6. When should TDS on rent be deducted and deposited?

TDS should be deducted at the time of credit or payment of rent, whichever is earlier, and deposited within the government-specified due dates.

7. What if rent is paid for machinery? Is there a different TDS rate?

Yes, rent paid for machinery falls under Section 194I but attracts a lower TDS rate of 2%.

8. Does TDS need to be deducted if the rent is below Rs. 50,000 per month?

No, TDS deduction is not mandatory if the monthly rent paid is below Rs. 50,000.

9. Can the landlord claim credit for TDS deducted?

Yes, the landlord can claim credit for TDS deducted against their total tax liability when filing their income tax return.

10. What if TDS is not deducted or is deducted late?

The deductor may face penalties, interest on late deduction, and disallowance of rent expense under the Income Tax Act.

11. Is Form 16A required to be issued under Section 194I?

Yes, the deductor must issue Form 16A as the TDS certificate to the landlord as proof of tax deducted.

12. Is rent paid by individuals or HUFs also covered under Section 194I?

Rent paid by individuals or HUFs liable for tax audit comes under Section 194I; otherwise, it is governed by Section 194IB.

Conclusion

Section 194I plays a pivotal role in the Indian tax ecosystem by mandating TDS deductions on rent payments above defined limits. The increase in threshold to Rs. 6 lakh annually (or Rs. 50,000 monthly) and the clear distinction of rates for buildings versus machinery rent provide a balanced approach to ease compliance while safeguarding tax revenues.

Understanding these provisions helps landlords and tenants navigate their tax obligations smoothly, avoid penalties, and promote a lawful rental market. For personalized advice, consulting with tax professionals ensures optimal compliance tailored to specific scenarios.