Last reviewed: 12 August 2026. TDS on rent is the deduction most often missed by people who never think of themselves as deductors — the salaried tenant in a ₹55,000 flat, the proprietor renting a godown, the family paying rent to an NRI landlord. It is also one of the easiest defaults for the department to spot: HRA claims, Form 26QC filings and the landlord’s AIS are now matched against each other, and the tenant — not the landlord — carries the interest, fees and disallowance when a deduction is missed. This guide sets out who deducts under which section, at what rate, with worked examples, the Form 26QC drill, the NRI-landlord trap, and what changes from FY 2026-27 under the Income-tax Act, 2025.
Which section applies to you
Three questions decide everything: who is paying, what is being rented, and is the landlord a resident. Work down this table before touching a rate.
| Tenant (payer) | Landlord | Section | Rate | Trigger |
|---|---|---|---|---|
| Company, LLP, firm, or any entity | Resident | 194-I | 10% land/building/furniture · 2% plant & machinery | Rent exceeds ₹50,000 for a month or part of a month |
| Individual/HUF liable to tax audit (business turnover above ₹1 crore / professional receipts above ₹50 lakh in the preceding FY) | Resident | 194-I | 10% / 2% | Same ₹50,000-a-month test |
| Individual/HUF not liable to tax audit | Resident | 194-IB | 2% (land or building only) | Rent exceeds ₹50,000 for a month or part of a month |
| Any tenant | Non-resident | 195 | 30% + surcharge + 4% cess (or lower per DTAA/197 certificate) | No threshold — applies from the first rupee |
One quirk worth knowing: machinery or equipment hired by a non-audit individual is outside both sections — 194-IB covers only land and building. And if your landlord is a non-resident, the amount does not matter; section 195 applies even to ₹10,000 a month.
Section 194-I: businesses and audit-liable payers
Finance Act 2025 rewrote the threshold from 1 April 2025: the old test of ₹2,40,000 a year became ₹50,000 for a month or part of a month. That cuts both ways. A shop paying ₹45,000 a month (₹5,40,000 a year) needed TDS under the old annual test but needs none now. A two-month project office at ₹60,000 a month never crossed the old annual limit but needs TDS on both months today.
| Item | Position for FY 2025-26 and FY 2026-27 |
|---|---|
| Rate — land, building, furniture, fittings | 10% |
| Rate — plant, machinery, equipment | 2% |
| Threshold | Rent exceeding ₹50,000 for a month or part of a month (per landlord) |
| GST on rent | Deduct on rent excluding GST where GST is shown separately (Circular 23/2017) |
| Deposit | By the 7th of the following month; 30 April for March deductions |
| Return and certificate | Quarterly Form 26Q (Form 140 from FY 2026-27); Form 16A (Form 131) to the landlord within 15 days of the statement due date |
Worked example. A private limited company in Thane pays office rent of ₹1,20,000 plus 18% GST (₹21,600), invoice total ₹1,41,600. TDS is 10% of ₹1,20,000 = ₹12,000 a month — not 10% of the invoice total. The landlord receives ₹1,29,600, the ₹12,000 is deposited by the 7th of the next month, and the year’s ₹1,44,000 flows through the four quarterly statements (Q2 of FY 2026-27 is due 31 October 2026). Miss the deduction and 30% of the rent is disallowed in the tax computation under section 40(a)(ia) — an expensive way to save paperwork.
Section 194-IB: tenants who are not businesses
This is the section most salaried tenants have never heard of, and it was written precisely for them. If you are an individual or HUF with no tax-audit liability and your rent for a house, flat or shop crosses ₹50,000 for a month or part of a month, you must deduct 2% of the rent paid for the whole year — but only once, from the rent for March or the last month of your tenancy, whichever ends the arrangement for that year. The rate was 5% until 30 September 2024 and is 2% since 1 October 2024.
- Deduct 2% of the full year’s (or tenancy period’s) rent from the final month’s payment.
- Deposit and report in one step — Form 26QC, a challan-cum-statement, within 30 days from the end of the month of deduction. No TAN is required; your PAN and the landlord’s PAN are enough.
- Issue Form 16C to the landlord within 15 days of the 26QC due date.
Worked example. Rent ₹60,000 a month for the whole of FY 2025-26 → annual rent ₹7,20,000 → TDS at 2% = ₹14,400. The March 2026 payment to the landlord is ₹60,000 − ₹14,400 = ₹45,600; Form 26QC was due by 30 April 2026 and Form 16C by mid-May. Vacating mid-year? The deduction moves to your exit month: leave on 31 August 2026 after five months at ₹60,000, and you deduct 2% of ₹3,00,000 = ₹6,000 from the August rent, with Form 26QC due by 30 September 2026 — a step almost everyone shifting flats forgets.
If the landlord’s PAN is missing or inoperative, the rate becomes 20% under section 206AA — capped, mercifully, at the last month’s rent. In the example above, 20% of ₹7,20,000 is ₹1,44,000, but the deduction stops at the March rent of ₹60,000. Verify the PAN’s status on the e-filing portal before you deduct; a short deduction becomes your liability, not the landlord’s.
NRI landlord? Section 195, not 194-IB
The moment the landlord is a non-resident, both rent sections step aside and section 195 takes over: TDS at the rates in force — 30% plus applicable surcharge plus 4% cess, an effective 31.2% where total payments stay below the surcharge slabs — on every rupee of rent, every month, with no threshold. The tenant must obtain a TAN, deposit monthly, file Form 27Q quarterly (Form 144 from FY 2026-27) and issue Form 16A. Practical relief exists on two routes: the landlord can obtain a lower or nil deduction certificate under section 197 (Form 13), or claim treaty relief with a tax residency certificate and Form 10F. Remitting the net rent abroad brings Form 15CA/15CB into play, and the same discipline applies when an NRI sells property — see our guide on TDS on NRI property sales under section 195.
FY 2025-26 vs FY 2026-27: the Income-tax Act, 2025 shift
FY 2025-26 (now being filed and audited) ran under the 1961 Act. Payments from 1 April 2026 fall under the Income-tax Act, 2025, which carries the same rules into a consolidated table — our TDS old-to-new section mapping covers the full framework.
| Item | FY 2025-26 (1961 Act) | FY 2026-27 (2025 Act) |
|---|---|---|
| Governing provision — resident landlord | Section 194-I / 194-IB | Sl. No. 2 of the table in section 393(1) |
| Governing provision — NRI landlord | Section 195 | Section 393(2) |
| Rates and ₹50,000-a-month threshold | Unchanged across both years | |
| Quarterly statement (business payers) | Form 26Q / 27Q | Form 140 / Form 144 |
| Tenant’s challan-cum-statement | Form 26QC | Consolidated into Form 141 |
| TDS certificate | Form 16A / 16C | Form 131 series |
The renumbered forms flow from the Income-tax Rules, 2026, and portal utilities are being updated through the year — confirm the live form label on TRACES or the e-filing portal at the time of payment rather than relying on the old numbers from memory.
What a missed deduction costs
| Default | Consequence |
|---|---|
| Tax not deducted | Interest at 1% per month from the date it was deductible to the date of deduction |
| Deducted but not deposited | Interest at 1.5% per month from deduction to deposit |
| Form 26QC / statement filed late | Fee of ₹200 per day under section 234E, capped at the TDS amount |
| Form 16C / certificate not issued | ₹500 per day under section 272A |
| Statement defaults beyond a year / wrong particulars | Penalty of ₹10,000 to ₹1,00,000 under section 271H |
| Business payer skips TDS on rent | 30% of the rent disallowed under section 40(a)(ia) (the entire amount where the landlord is a non-resident), allowed back only in the year of deposit |
TDS, HRA and GST can all sit on one rent
The same ₹60,000 flat can touch three laws at once. The tenant claiming HRA exemption needs the landlord’s PAN once annual rent crosses ₹1,00,000 — and must deduct 194-IB TDS above ₹50,000 a month; the department has been matching high HRA claims against Form 26QC filings and nudging tenants who did one without the other. On commercial premises, GST on rent may apply at 18% — with TDS always computed on the GST-exclusive rent. The landlord, meanwhile, sees every deduction land in Form 26AS/AIS and claims the credit in the ITR. Keep the rent agreement, receipts, PAN records, challans and certificates in one file; every one of these threads gets tested together in a scrutiny.
Common mistakes we keep correcting
- Salaried tenants assuming TDS is a business obligation — section 194-IB was written for non-business tenants.
- Deducting 2% under 194-IB when the landlord is an NRI — section 195 applies, and the shortfall (plus interest) lands on the tenant.
- Applying the old ₹2,40,000 annual test — the monthly ₹50,000 test governs from 1 April 2025, and it changes the answer in both directions.
- Deducting TDS on the GST-inclusive invoice value instead of the base rent.
- Forgetting the deduction when vacating mid-year — the last month of tenancy, not March, is the trigger.
- Not checking whether the landlord’s PAN is operative — an inoperative PAN means a 20% deduction, and a short deduction becomes the tenant’s demand.
- Co-tenants relying on rent-splitting without the agreement actually naming each payer and share — the threshold is tested on what each tenant genuinely pays.
- Business payers discovering the 30% disallowance only when the tax auditor reports it in Form 3CD.
Frequently asked questions
Who deducts TDS on rent — the tenant or the landlord?
Always the tenant (the person paying the rent). The landlord receives rent net of TDS and claims the credit in their income-tax return; the deduction appears in the landlord’s Form 26AS and AIS once the tenant files Form 26QC or the quarterly TDS statement.
I am salaried and pay ₹55,000 rent for my flat. Do I really have to deduct TDS?
Yes. Section 194-IB applies to individuals and HUFs who are not liable to tax audit, once rent for land or building crosses ₹50,000 for a month or part of a month. You deduct 2% of the whole year’s rent from the last month’s payment (March, or the month you vacate), deposit it through Form 26QC within 30 days of that month’s end, and give the landlord Form 16C. No TAN is needed — both PANs suffice.
What if my landlord does not give a PAN, or the PAN is inoperative?
Tax must be deducted at 20% under section 206AA instead of 2%, though under section 194-IB the deduction is capped at the rent for the last month. Check the PAN’s operative status (PAN–Aadhaar linkage) on the e-filing portal before deducting — a short deduction becomes your demand, with interest.
Is TDS deducted on the GST portion of commercial rent?
No. Where GST on rent is indicated separately in the invoice or agreement, TDS under section 194-I is deducted on the rent excluding GST (CBDT Circular 23/2017). On a ₹1,20,000 office rent plus 18% GST, TDS is 10% of ₹1,20,000, not of ₹1,41,600.
My landlord is an NRI. Can I still deduct 2% under section 194-IB?
No. Rent paid to a non-resident falls under section 195 — TDS at 30% plus applicable surcharge and 4% cess on every rupee (no ₹50,000 threshold), deducted every month. The tenant needs a TAN and files Form 27Q (Form 144 from FY 2026-27). The landlord can apply for a lower or nil deduction certificate under section 197, and treaty (DTAA) relief may be available with a tax residency certificate.
What changes for rent TDS from FY 2026-27 under the Income-tax Act, 2025?
The substance is unchanged — same 10%/2% and 2% rates and the same ₹50,000-a-month threshold. Rent now sits at Sl. No. 2 of the table in section 393(1) of the Income-tax Act, 2025 (section 393(2) for non-resident landlords), and the forms are renumbered under the Income-tax Rules, 2026: Form 26Q becomes Form 140, Form 27Q becomes Form 144, the tenant’s challan-cum-statement family (26QC) is consolidated into Form 141, and certificates move to the Form 131 series. Confirm the live form label on TRACES/e-filing when you pay.
We prepare and file Form 26QC/26QB and quarterly TDS returns, obtain TANs and lower-deduction certificates for NRI landlords, reconcile 26AS/AIS credits, and reply to short-deduction notices — for tenants, landlords and businesses.
TDS Return Filing NRI Lower TDS Certificate Talk to usThis article is general information for FY 2025-26 and FY 2026-27, based on the law as on 12 August 2026 — including the Income-tax Act, 2025 effective 1 April 2026 and the renumbered forms under the Income-tax Rules, 2026. TDS positions turn on facts (residential status, audit liability, the rent agreement); please confirm the current position or take professional advice before acting on it.