Who is required to deduct TDS on rent in India?

Two separate provisions apply. Section 194-I of the Income-tax Act 1961 applies to any person other than an individual or HUF (i.e., companies, LLPs, firms) paying rent for the use of land, building, plant, machinery, equipment, furniture, or fittings, where the aggregate rent paid or payable to a single landlord in the financial year exceeds ₹2.4 lakh. Section 194-IB applies to individuals and HUFs paying rent for any use, where the monthly rent exceeds ₹50,000 to a single landlord. The two provisions are mutually exclusive — a tenant falls under exactly one of them based on the tenant's status.

What is the TDS rate on rent under section 194-I and section 194-IB?

Under section 194-I, the TDS rate is 10 per cent for rent paid for the use of land, building, furniture, or fittings; and 2 per cent for rent paid for the use of plant, machinery, or equipment. The rate is applied to the gross rent without deduction of GST if the rent invoice separately shows GST. Under section 194-IB, the TDS rate is 5 per cent on the entire annual rent paid in the financial year. The 194-IB deduction is made only once a year, in the last month of the financial year (March) or in the month of vacating the property, whichever is earlier.

What happens if the landlord has not provided a PAN?

Under section 206AA of the Income-tax Act 1961, if the landlord (deductee) does not furnish a PAN, the TDS rate is the higher of the rate specified in the relevant section, the rate in force, or 20 per cent. For rent under section 194-I, this means TDS at 20 per cent instead of 10 per cent. For rent under section 194-IB, the TDS is capped at the rent for one month, which means the 5 per cent rate is applied but the maximum TDS is one month's rent regardless of how high the 20 per cent rate would calculate. The tenant should obtain and verify the landlord's PAN at the start of the lease to avoid the higher rate.

What is Form 26QC and when must it be filed?

Form 26QC is the challan-cum-statement filed by individuals and HUFs deducting TDS under section 194-IB. It must be filed within 30 days from the end of the month in which the TDS was deducted. For an annual deduction in March 2027, Form 26QC must be filed by 30 April 2027. The form combines the challan for tax payment and the statement of deduction in a single online filing on the TIN-NSDL portal. After successful filing, the deductor must download Form 16C (the TDS certificate) and provide it to the landlord within 15 days from the due date of Form 26QC.

Is TDS to be deducted on rent that includes GST?

When the rent invoice shows the rent amount and GST separately, TDS under section 194-I is deducted only on the rent amount, not on the GST component, per CBDT Circular No. 23/2017 dated 19 July 2017. When the invoice is composite (rent and GST not separately shown), TDS is deducted on the total invoice value. For section 194-IB, the threshold of ₹50,000 per month and the TDS computation are on the rent amount excluding GST, when GST is separately invoiced. We recommend that tenants request a rent invoice with GST shown separately to avoid the higher TDS base.

TDS on rent under section 194-I and 194-IB in FY 2026-27: the ₹2.4 lakh threshold, the 10 per cent rate, and the small-landlord 5 per cent route

The TDS on rent provisions are some of the most frequently misapplied in Indian individual taxation. Section 194-IB, which obligates individuals and HUFs paying high-end residential or commercial rent to deduct TDS once a year and file Form 26QC, was introduced in 2017 and is still unfamiliar to a large fraction of urban salaried taxpayers paying ₹60,000 to ₹2 lakh per month in city rents. The non-compliance is usually inadvertent, the tenant simply does not know the obligation exists, but the interest and penalty exposure is real.

This post covers both rent-TDS regimes (section 194-I for businesses, section 194-IB for individuals and HUFs), the rates and thresholds for FY 2026-27, the Form 26QC filing process, the PAN consequences, the calendar of TDS deposit and return filing, and the practical workflows we use with retainer clients to keep both provisions covered.

The two regimes at a glance

Provision	Who deducts	When triggered	Rate	Deduction frequency
Section 194-I	Companies, LLPs, firms, AOPs	Aggregate rent to single landlord exceeds ₹2.4 lakh in FY	10% (land/building) or 2% (plant/machinery)	At each payment or credit
Section 194-IB	Individuals, HUFs (not subject to tax audit)	Monthly rent to single landlord exceeds ₹50,000	5%	Once a year (March) or on vacating

Tenants who are individuals or HUFs subject to tax audit under section 44AB (i.e., business turnover exceeds the audit threshold) fall under section 194-I, not 194-IB. So a freelancer with audited business turnover would deduct under 194-I.

Section 194-I: the business rule

Section 194-I applies whenever any person other than an individual or HUF (or an individual/HUF subject to tax audit) pays rent for the use of:

Land or building (including factory building), TDS at 10 per cent.
Furniture or fittings, TDS at 10 per cent.
Plant, machinery, or equipment, TDS at 2 per cent.

The threshold is aggregate rent paid or payable to a single landlord exceeding ₹2.4 lakh in the financial year. The threshold is checked per landlord, not per property. A company renting two properties from the same landlord aggregates the rent across both for the threshold test.

The TDS is deducted at the time of credit to the landlord's account or at the time of payment, whichever is earlier. For a monthly rent of ₹50,000, the cumulative annual rent of ₹6 lakh exceeds the threshold; TDS at 10 per cent applies from the first payment of the year (not just after the threshold is crossed). The full ₹60,000 TDS for the year is spread across the 12 monthly deductions of ₹5,000 each.

The deducted TDS is deposited with the government by the 7th of the following month (the deposit due date for TDS generally). The TDS return on Form 26Q is filed quarterly by 31 July, 31 October, 31 January, and 31 May.

Section 194-IB: the individual rule that catches most people off guard

Section 194-IB was inserted by Finance Act 2017 to bring high-end residential rent paid by salaried individuals within the TDS net. The mechanics are deliberately simplified to avoid burdening individual tenants with monthly TDS administration:

The deduction is made once a year, in the last month of the financial year (March) or in the month the tenant vacates the property, whichever is earlier.
The rate is 5 per cent on the entire annual rent for the year (not just the rent for the deduction month).
The Form 26QC filing combines challan and statement in one online step.

A tenant paying ₹70,000 per month for a Mumbai apartment from April 2026 to March 2027 has annual rent of ₹8.4 lakh, on which 5 per cent TDS is ₹42,000. The tenant deducts this ₹42,000 from the March 2027 rent payment (paying the landlord only ₹28,000 for that month) and deposits the ₹42,000 with the government via Form 26QC within 30 days (by 30 April 2027).

A tenant who vacates the property in October 2026 (after six months at ₹70,000) has aggregate rent of ₹4.2 lakh. Since the monthly rent exceeded ₹50,000, the obligation is triggered. TDS at 5 per cent is ₹21,000, deducted from the October rent payment and deposited via Form 26QC by 30 November 2026.

The PAN consequence and the one-month cap

Under section 206AA, if the landlord has not furnished a PAN, the TDS rate is the higher of the section rate, the rate in force, or 20 per cent. For section 194-I rent of ₹50,000/month with no PAN, the rate jumps from 10 per cent to 20 per cent, doubling the monthly TDS to ₹10,000.

For section 194-IB, there is a special cap: when the landlord has no PAN, the TDS at 20 per cent would still apply, but the maximum TDS amount is capped at one month's rent. So for ₹70,000 monthly rent with no PAN, the 20 per cent rate on ₹8.4 lakh annual rent would calculate to ₹1.68 lakh, but it is capped at one month's rent of ₹70,000. This still exceeds the standard 5 per cent calculation of ₹42,000, but the cap prevents the disproportionate confiscation that the 20 per cent rate would otherwise impose.

The practical implication: always obtain and verify the landlord's PAN at the start of the lease. The penalty for missing this single document is meaningful.

Form 26QC: the once-a-year individual filing

Form 26QC is filed on the TIN-NSDL portal at incometax.gov.in (after the FY 2024-25 portal consolidation). The form fields are:

Tenant details: PAN, name, address, mobile, email.
Landlord details: PAN, name, address.
Property details: address of the rented property.
Period of rent: start and end dates of the lease covered.
Total rent paid in FY: the full annual rent.
TDS amount: 5 per cent of the total rent (or the one-month cap if no PAN).
Date of deduction and payment: the date the TDS amount was actually deducted.

After successful filing, the system issues an acknowledgement and the TDS is deposited via the integrated challan. The deductor then downloads Form 16C (the TDS certificate) and provides it to the landlord within 15 days from the Form 26QC due date.

The landlord uses Form 16C to claim credit for the TDS in their own income tax return. Without Form 16C, the landlord can still see the TDS in their AIS and TIS, but the formal certificate is the documentary proof for any tax officer query.

The penalty exposure for missed compliance

Failure to deduct TDS attracts:

Interest under section 201(1A): 1 per cent per month from the date TDS was due to be deducted until the date of actual deduction.
Disallowance under section 40(a)(ia) of 30 per cent of the rent expense (relevant for businesses under section 194-I, not individuals under 194-IB).

Failure to deposit deducted TDS attracts:

Interest under section 201(1A): 1.5 per cent per month from the date of deduction until the date of deposit.
Penalty under section 271C: equal to the amount of TDS not deposited, in cases of wilful default.

Failure to file Form 26QC attracts:

Late filing fee under section 234E: ₹200 per day until the form is filed, capped at the TDS amount itself.
Penalty under section 271H: between ₹10,000 and ₹1 lakh for non-furnishing of the statement.

For most individual tenants who quietly missed the section 194-IB obligation for one financial year, the practical remediation is to file the delayed Form 26QC, pay the TDS amount, pay the section 201(1A) interest (typically a small absolute amount given the once-a-year nature of the deduction), and absorb the section 234E late fee (₹200 per day capped at the TDS amount). The penalty under section 271H is rarely invoked when the deductor voluntarily comes forward.

Common compliance gaps in our practice

Four patterns we see repeatedly in March-April when reviewing client filings:

Gap one: salaried tenant at high city rent does not know about 194-IB. Mumbai, Bangalore, Delhi-NCR, and Hyderabad tenants paying ₹60,000 to ₹1.5 lakh per month are the typical demographic. The obligation has existed since 2017 and is still often missed. The remediation is straightforward but the back-year filings are tedious.

Gap two: business deducting at 10 per cent on a rent invoice that includes GST. When the rent invoice shows GST separately, TDS is calculated only on the rent amount, not the GST. Deducting on the gross invoice over-deducts by the GST portion and creates a refund issue for the landlord.

Gap three: rent paid in lump sum at lease start, no TDS deducted. Some tenants pay 11 or 12 months' rent in advance at lease commencement to receive a discount. The TDS obligation is triggered at the time of credit or payment, so the entire annual TDS is due at the time of the advance payment, not spread monthly. Missing this triggers section 201(1A) interest from the advance payment date.

Gap four: tenant deducts TDS but does not provide Form 16C to landlord. The landlord then disputes the TDS in their own return, and the AO eventually issues a notice asking for documentary evidence. The tenant must re-issue Form 16C months later, after which the landlord can finally close the issue.

The workflow we use with retainer clients

For business clients under section 194-I, the workflow is integrated with the monthly compliance cycle: rent invoices are received, TDS is deducted at payment, monthly TDS challan is paid by the 7th, and the quarterly Form 26Q is filed. No special calendar entry is needed beyond the standard TDS hygiene.

For individual clients under section 194-IB, the workflow is concentrated in March:

In February: confirm the annual rent total, verify the landlord's PAN, prepare Form 26QC inputs.
In late March: deduct the 5 per cent from the March rent payment (or pro-rata if mid-lease), pay the net amount to landlord.
By 30 April: file Form 26QC online, deposit the TDS via integrated challan.
By 15 May: download Form 16C and provide it to landlord.

This four-step workflow takes about 60 minutes annually per individual tenant. We bundle it with the year-end tax filing preparation for retainer clients.

Practical guidance for FY 2026-27

For business tenants who have not yet set up TDS deduction on rent under section 194-I, May is the right month to start. The first quarterly TDS return for FY 2026-27 is due 31 July 2026 (covering April-June deductions), so deductions made from now onwards can be reported in the first return without back-period interest.

For individual tenants paying rent above ₹50,000 per month, the section 194-IB obligation for FY 2026-27 will crystallise in March 2027. The work to be done now: confirm the landlord's PAN, save the lease agreement, and add the March 2027 entry to your tax-compliance calendar. Doing it in May is much easier than scrambling in late March under year-end pressure.

For tenants who have missed section 194-IB compliance in prior years, the recommended remediation is voluntary disclosure: file the back-year Form 26QC for each year missed, pay the TDS amount with section 201(1A) interest, and absorb the section 234E late fee. The total absolute cost is usually under 15 per cent of the missed TDS amount, which is meaningfully smaller than the cost of being caught later in a scrutiny assessment.