TDS on rent is not a single provision. Two separate regimes apply depending on who is paying, and the compliance requirements differ accordingly.

Which Provision Applies

The Income-tax Act, 2025, effective from 1 April 2026, consolidates all non-salary deductions into Section 393. The distinction previously drawn between Section 194I and Section 194IB of the Income-tax Act, 1961 has not disappeared; it now appears as two separate entries in the table to Section 393(1), separated by the status of the payer rather than by section number.

  • Specified person (Section 393(1), Table Sl. No. 2(ii)), corresponding to the earlier Section 194I: applies to companies, firms and LLPs, and to individuals or HUFs whose business turnover exceeded Rs 1 crore or professional receipts exceeded Rs 50 lakh in the preceding year. TDS is deducted monthly and deposited by the 7th of the following month. A TAN is required and the deduction is reported in the quarterly statement.
  • Person other than a specified person (Section 393(1), Table Sl. No. 2(i)), corresponding to the earlier Section 194IB: applies to individuals and HUFs below those thresholds paying monthly rent above Rs 50,000. TDS is deducted once in the last month of the tax year or of the tenancy, whichever is earlier. Form 141, Schedule A, must be furnished within 30 days from the end of the month of deduction. No TAN is required; the payer uses their own PAN.

Form 141 is the unified challan-cum-statement introduced under the 2025 Act. It replaces the earlier Forms 26QB, 26QC, 26QD and 26QE.

The Rates

  • Land, building (including factory building), furniture and fittings: 10%.
  • Plant, machinery and equipment: 2%.
  • Rent paid by a person other than a specified person: 2% flat.

The Threshold

Rs 50,000 for a month or part of a month, not annual rent. Once monthly rent exceeds this threshold, the applicable provisions become relevant. Reading the threshold as an annual figure is a common misconception that leads to compliance gaps.

Where Tenants Commonly Go Wrong

  • Applying 10% to machinery or IT equipment hired from vendors. The correct rate is 2%.
  • Deducting TDS on the GST-inclusive amount. TDS applies on base rent only, excluding GST shown separately on the invoice.
  • Treating refundable security deposits as rent. A genuinely refundable deposit is not subject to TDS.
  • Not obtaining the landlord's PAN. Where PAN is not furnished, TDS is deducted at 20% under Section 397(2), corresponding to the earlier Section 206AA.

Why This Matters

Non-deduction attracts interest at 1% per month from the date TDS was due to be deducted until the date it is actually deducted. This is distinct from the higher interest of 1.5% per month applicable where TDS is deducted but not deposited.

In addition, 30% of the rent expense is disallowed under Section 35(b), corresponding to the earlier Section 40(a)(ia), for business deductors. A missed deduction on Rs 10 lakh of annual rent can result in Rs 3 lakh being disallowed as an expense, along with interest on the undeducted TDS.

Key Takeaway

The correct treatment turns on two questions asked at the outset: who is the payer, and what is being rented. Establishing both before the first payment is considerably simpler than correcting the position after a notice.