Section 194I – TDS on Rent: House Rent, Office Rent, Rates & GST Impact (FY 2025–26 Guide)

Rent payments are common for:

• Businesses operating from leased offices

• Professionals using commercial spaces

• Individuals earning rental income from property

Section 194I of the Income Tax Act governs TDS on rent payments, and incorrect compliance is one of the most frequent reasons for TDS notices.

This WonderTax guide explains:

• When TDS on rent applies

• Applicable rates & thresholds

• GST impact on rent

• Practical examples & compliance tips

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What Is Section 194I?

Section 194I requires deduction of TDS on rent paid for the use of land, building, plant, machinery, furniture or fittings.

Rent Includes:

• Office rent

• Shop rent

• Warehouse rent

• Factory shed rent

• Equipment & machinery rent

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Who Is Required to Deduct TDS Under Section 194I?

⚠️ Individuals or HUFs not liable to tax audit do not deduct TDS under Section 194I
(They may fall under Section 194IB instead).

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Threshold Limit Under Section 194I (FY 2025–26)

TDS is applicable only if annual rent exceeds ₹2,40,000 per financial year, per payee.

👉 If rent is ₹20,000 per month or less → No TDS under Section 194I.

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TDS Rates Under Section 194I

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Example 1: Office Rent Paid by Company

• Monthly office rent: ₹50,000

• Annual rent: ₹6,00,000

👉 TDS applicable @10%

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Example 2: Machinery Rent

• Annual machinery rent: ₹3,00,000

👉 TDS @2%

TDS Deducted

₹6,000

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GST Impact on Rent & TDS (Important)

Key Rule

TDS under Section 194I is deducted on rent amount excluding GST, if GST is shown separately in the invoice.

Example: Rent with GST

• Rent: ₹1,00,000

• GST @18%: ₹18,000

👉 TDS @10% on ₹1,00,000 = ₹10,000
👉 GST amount is not subject to TDS

⚠️ If GST is not shown separately, TDS may apply on the total amount.

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When Should TDS Be Deducted & Deposited?

• Deduction: At the time of credit or payment, whichever is earlier

• Deposit: On or before 7th of the next month

• Quarterly Return: Form 26Q

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Compliance Checklist for Deductors

✔ Check rent threshold (₹2.40 lakh)
✔ Identify correct TDS section (194I vs 194IB)
✔ Apply correct TDS rate
✔ Exclude GST where applicable
✔ Deposit TDS on time
✔ File Form 26Q quarterly
✔ Issue Form 16A to landlord

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Common Mistakes Under Section 194I

• Applying Section 194I instead of 194IB

• Deducting TDS on GST amount

• Missing TDS on advance rent

• PAN not collected → higher TDS

• Delay in deposit leading to interest & penalty

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Interest & Penalty for Non-Compliance

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FAQs (Schema-Ready)

Is TDS applicable on residential house rent?

Yes, if paid by a business/professional covered under Section 194I.

Does security deposit attract TDS?

No, if refundable. Non-refundable deposits may attract TDS.

Is TDS applicable on advance rent?

Yes, TDS applies at the time of payment or credit.

Can landlord claim credit of TDS?

Yes, through Form 26AS/AIS while filing ITR.

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Internal Links (WonderTax)

• TDS Return Filing Services
  https://wondertax.in/tds-return-filing

• Section 194IB – TDS on Rent by Individuals
  https://wondertax.in/tds-on-rent-194ib

• Income Tax Notice Handling
  https://wondertax.in/services/income-tax-notice-handling

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Conclusion

Section 194I plays a critical role in rent-related tax compliance. Correct identification of:

• Applicable section

• TDS rate

• GST treatment

can save businesses from heavy interest, penalties, and notices.

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CTA – WonderTax

👉 Need help with TDS on rent or compliance under Section 194I?

WonderTax helps with:

• TDS applicability check

• Monthly TDS compliance

• TDS returns (26Q)

• Notice handling & corrections

🔗 https://wondertax.in