TDS on Rent (194I): Everything You Need to Know (New Limit in Budget 2025)

 

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TDS on Rent (194I): Everything You Need to Know (New Limit in Budget 2025)

TDS (Tax Deducted at Source) on rent is a key provision under the Income Tax Act, 1961, ensuring tax compliance on rental income. Whether you’re a business, individual, or company paying rent, knowing the latest TDS rules is essential to avoid penalties.

The Union Budget 2025 has introduced a major change by increasing the TDS on rent exemption limit from ₹2,40,000 to ₹6,00,000 per annum. Let’s break it down in simple terms.

What is TDS on Rent?

TDS on rent refers to the tax deducted by the payer (tenant) before making rental payments to the landlord. The deducted tax is then deposited with the government.

Which Payments are Considered Rent?

As per Section 194I of the Income Tax Act, "rent" includes payments for the use of:

• Land
• Buildings (Residential & Commercial)
• Machinery
• Equipment
• Furniture & Fixtures

Who is Required to Deduct TDS on Rent?

TDS on rent must be deducted by:

• Any business or entity (except individuals & HUFs not under tax audit) if the total rent exceeds ₹6,00,000 per year.
• Individuals or HUFs paying rent above ₹50,000 per month under Section 194IB (explained later).

Example: If you rent an office space for ₹60,000 per month, your annual rent = ₹7,20,000, which exceeds ₹6,00,000. You must deduct TDS.

TDS on Rent Rates (As per Section 194I)

Type of Asset	TDS Rate
Land, Building, Furniture, or Fittings	10%
Plant, Machinery, or Equipment	2%
If PAN is not provided	20%

TDS on Rent for Individuals (Section 194IB)

Individuals or HUFs not covered under tax audit must deduct 5% TDS on rent if the monthly rent exceeds ₹50,000.

Example: If you pay ₹55,000/month as house rent, the annual rent is ₹6,60,000. You must deduct 5% of ₹6,60,000 = ₹33,000 as TDS and deposit it with the government.

TDS Deduction & Payment Timeline

• TDS should be deducted at the time of payment or credit to the landlord’s account, whichever is earlier.
• The deducted TDS must be deposited with the government:
  • For non-government deductors – By the 7th of the next month.
  • For government deductors – On the same day of deduction.

Exemptions & Exceptions

No TDS on rent is required if:

• The total rent in a financial year does not exceed ₹6,00,000.
• Rent is paid to government bodies or entities exempt from tax.

New Rule for TDS on Rent in Budget 2025

Major Update: The TDS on rent limit has been increased from ₹2,40,000 to ₹6,00,000 per annum.

This means that small businesses and individuals renting properties for amounts below ₹6,00,000 per year no longer need to deduct TDS. This change reduces compliance burdens for many taxpayers.

Illustrative Example

Company Paying Rent Above the Threshold

• ABC Pvt. Ltd. pays a monthly rent of ₹75,000 for office space.
• Annual Rent = ₹75,000 × 12 = ₹9,00,000 (Exceeds ₹6,00,000).
• TDS @ 10% of ₹75,000 = ₹7,500 per month.
• The company must deduct ₹7,500 monthly and deposit it by the 7th of the next month.

Frequently Asked Questions (FAQs)

1. What is the new TDS on rent limit as per Budget 2025?

The new limit is ₹6,00,000 per annum (previously ₹2,40,000).

2. Is TDS applicable to residential property rent?

Yes, if the rent exceeds ₹6,00,000 per year for businesses or ₹50,000 per month for individuals under Section 194IB.

3. How much TDS should I deduct on office rent?

10% for buildings/land and 2% for machinery/equipment.

4. What happens if I don’t deduct TDS on rent?

The expense may be disallowed, and you may face interest and penalties.

5. Is GST applicable along with TDS on rent?

Yes, if the landlord’s annual turnover exceeds ₹20 lakh, GST @18% applies. However, TDS is deducted only on the rent amount (not on GST).

6. Can I claim a refund of deducted TDS on rent?

If your total tax liability is lower, you can claim a refund while filing your Income Tax Return (ITR).

7. What is the TDS on rent limit for individuals?

₹50,000 per month under Section 194IB (5% deduction).

8. How to check if my landlord has received the TDS credit?

You can check Form 26AS on the income tax portal to verify TDS credits.

9. Do NRIs have to deduct TDS on rent?

Yes, if an NRI landlord receives rental income, TDS @ 30% must be deducted under Section 195.

10. Can TDS on rent be paid late?

Yes, but interest @1.5% per month applies for late payment.

Conclusion

The new TDS on rent rules under Budget 2025 simplify compliance for businesses and individuals. If your annual rent is below ₹6,00,000, you no longer need to deduct TDS. However, for higher amounts, timely TDS deduction and deposit are crucial to avoid penalties.

Stay updated on tax regulations to manage your finances effectively!

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