Section 194I requires businesses to deduct TDS on rent at 10% for land/building and 2% for plant and machinery, above an annual threshold; Section 194IB requires individuals and HUFs (not under tax audit) to deduct 2% on rent exceeding Rs.50,000 per month.
Section 194I (business tenants)
| Rent of | Rate |
|---|---|
| Land or building (incl. furniture) | 10% |
| Plant, machinery or equipment | 2% |
194I applies to businesses and professionals liable to audit, once annual rent to a landlord exceeds the threshold (Rs.6,00,000 per year following the Finance Act 2025; Rs.2,40,000 earlier). Rs.6,00,000 p.a. threshold (194I) per Finance Act 2025; Rs.50,000/month (194IB). Verify the current threshold.
Section 194IB (individual/HUF tenants)
194IB targets individuals and HUFs not liable to tax audit who pay rent. They must deduct 2% (reduced from 5% with effect from 1 October 2024) where monthly rent exceeds Rs.50,000. The deduction is made once a year (in the last month of the tenancy or the financial year), not monthly, and is paid using a challan-cum-statement in Form 26QC — no TAN is needed.
Comparison
| Feature | 194I | 194IB |
|---|---|---|
| Who deducts | Business / audit cases | Individual/HUF (non-audit) |
| Rate | 10% / 2% | 2% |
| Threshold | Rs.6,00,000 p.a. | Rs.50,000 per month |
| TAN required | Yes | No (Form 26QC) |
| Frequency | Monthly | Once a year |
Practical points
- Rent for 194I is the amount excluding GST, where GST is shown separately (CBDT Circular 23/2017).
- 194IB deduction is capped so it does not exceed the last month's rent.
- Collect the landlord's PAN; without it, 194IB deducts at 20% (capped at last month's rent).
- Coordinate with GST on rent.
Worked examples: both sides of the line
Case A — company tenant. A private limited company pays office rent of Rs.60,000 per month (Rs.7,20,000 p.a.) to a resident landlord. Section 194-I applies: the Rs.6,00,000 annual threshold (Finance Act 2025) is crossed, so TDS at 10% (land/building) = Rs.72,000 for the year, deducted monthly at Rs.6,000, deposited by the 7th of the following month, reported in Form 26Q with Form 16A to the landlord.
Case B — individual tenant. A salaried individual (not liable to tax audit) pays house rent of Rs.55,000 per month. Section 194-IB applies: TDS at 2% on the annual rent of Rs.6,60,000 = Rs.13,200, deducted once — from the last month's rent of the year (or last month of tenancy) — deposited through challan-cum-statement Form 26QC within 30 days, with Form 16C to the landlord. No TAN is needed.
| Feature | 194-I | 194-IB |
|---|---|---|
| Deductor | Businesses; individuals/HUF under tax audit | Individuals/HUF not under tax audit |
| Trigger | Rent > Rs.6,00,000 p.a. | Rent > Rs.50,000 per month |
| Rate | 10% (land/building/furniture), 2% (plant & machinery) | 2% (reduced from 5% w.e.f. 1 October 2024) |
| Frequency & form | Monthly; 26Q, Form 16A, TAN required | Once a year; 26QC, Form 16C, PAN-based |
Edge cases that generate notices
- Rent to an NRI landlord: neither section applies — Section 195 does, at 30% plus surcharge/cess (or the DTAA rate), regardless of the rent amount. Tenants of NRI-owned flats are the single most common 195 defaulters.
- Two joint landlords: thresholds apply per landlord — Rs.55,000 per month split equally between two co-owners keeps each below the 194-IB trigger.
- Rent + maintenance billed together: TDS applies on the composite amount unless maintenance is separately invoiced by a different entity (the society or facility company).
- Security deposits: non-adjustable refundable deposits attract no TDS; deposits adjustable against rent do.
- 194-IB late deposit: interest at 1%/1.5% per month plus a Rs.200-per-day fee under 234E for late 26QC filing — on a Rs.13,200 deduction the fee can exceed the tax itself, so calendar the 30-day window.
Under the Income-tax Act 2025 both provisions merge into the consolidated TDS framework of Section 393 with unchanged rates and thresholds. Verify current thresholds at incometax.gov.in.
Landlord-side planning and credit flow
For the landlord, TDS under either section is simply a prepaid credit — but the timing mismatch matters. A 194-IB deduction happens in March and typically appears in the landlord's 26AS by mid-year; landlords computing advance tax should count the expected credit rather than paying twice. Landlords with income below the basic exemption can avoid deduction altogether: there is no 15G/15H route for rent under 194-IB, but a Section 197 lower/nil-deduction certificate works for 194-I tenants — worth obtaining for retired landlords whose only income is rent.
- HRA claims and 194-IB interact: employees claiming HRA on rent above Rs.50,000 per month who have not deducted TDS are now flagged by the department from HRA-versus-26QC matching — expect a notice where Form 26QC is missing.
- Rent paid to a landlord's GST-registered entity adds a second layer: commercial rent attracts 18% GST (forward charge), and TDS applies on the amount excluding GST where separately shown (Circular No. 23/2017).
- Composite equipment-plus-premises leases: split the invoice — plant and machinery rent deducts at 2% under 194-I, premises at 10%; an unsplit invoice defaults to the higher characterisation in audit.
Key takeaways
- 194I (business): 10% land/building, 2% plant; annual threshold.
- 194IB (individual/HUF): 2% on rent above Rs.50,000/month.
- 194IB is deducted once a year via Form 26QC (no TAN).
- TDS on rent excludes separately-shown GST.