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The 2-Minute Summary
When a specified person pays rent above Rs. 50,000 per month for any land, building, machinery, plant, equipment, furniture, or fittings, they must deduct TDS before making payment. This is Section 194I under the old Act, now Section 393(1) Sl. No. 2(ii) under the Income Tax Act 2025.
There are two rates depending on what is being rented. Machinery, plant, and equipment attract 2%. Land, buildings, factory buildings, furniture, and fittings attract 10%. The threshold is the same for both: Rs. 50,000 per month or part of a month.
Example: A manufacturing company pays Rs. 80,000 per month as rent for a factory building. Sl. 2(ii)(b) applies. TDS = 10% = Rs. 8,000 per month.
Example: The same company also rents machinery for Rs. 60,000 per month. Sl. 2(ii)(a) applies. TDS = 2% = Rs. 1,200 per month.
Under Income Tax Act 1961: Section 194I of the Income Tax Act 1961. Now Section 393(1) Sl. No. 2(ii) of the Income Tax Act 2025. Rates and threshold unchanged.
At a Glance
| Item | Details |
| New Act Reference | Section 393(1), Sl. No. 2(ii) of Income Tax Act 2025 |
| Old Act Reference | Section 194I of Income Tax Act 1961 |
| Who Deducts | Specified person (companies, firms, entities liable to tax audit, and individuals/HUFs above turnover threshold) |
| Rate — Machinery/Plant/Equipment | 2% |
| Rate — Land/Building/Furniture/Fittings | 10% |
| Threshold | Rs. 50,000 per month or part of a month |
| When to Deduct | At credit or payment, whichever is earlier (monthly) |
| Form for TDS Certificate | Form 16A |
| TAN Required | Yes |
Who is a Specified Person
Section 393(1) Sl. No. 2(ii) applies to a specified person, meaning any of the following:
- Central or State Government
- Any local authority
- Any company (Indian or foreign)
- Any firm, LLP, or co-operative society
- Any trust or institution
- Any individual or HUF whose turnover in business exceeded Rs. 1 crore or whose professional receipts exceeded Rs. 50 lakh in the preceding Tax Year
Individuals and HUFs below this turnover threshold are not specified persons under Sl. 2(ii). They fall under Sl. 2(i) instead, which is Section 194IB, with different rules. See the separate article on Section 194IB for that.
What is Rent for This Purpose
Section 402(30) of the Act defines rent broadly. It means any payment, by whatever name called, under any lease, sub-lease, tenancy, or any other agreement or arrangement for the use of any:
- Land
- Building (including factory building)
- Land appurtenant to a building (including factory building)
- Machinery
- Plant
- Equipment
- Furniture
- Fittings
The definition covers whether or not any or all of these are owned by the payee. So if a company takes a building on a service agreement that effectively amounts to a rent arrangement, TDS still applies.
Threshold: Rs. 50,000 Per Month
The threshold is Rs. 50,000 for a month or part of a month. This means TDS is triggered if the rent for any single month (or part of a month) is Rs. 50,001 or more.
The threshold is not an annual aggregate. Each month is assessed independently. If rent is Rs. 45,000 in most months but Rs. 52,000 in one month, TDS applies only in that month where the rent exceeds Rs. 50,000.
However, if a single rent agreement covers a period and is paid in advance, the threshold is applied to the monthly equivalent amount, not the lump sum.
Example: A company pays Rs. 6,00,000 as advance rent for 12 months for an office. Monthly equivalent = Rs. 50,000. This is exactly at the threshold, not above it. Whether TDS applies depends on whether Rs. 50,000 means the threshold is Rs. 50,000 (inclusive) or strictly above Rs. 50,000. As per the Act, the phrase ‘fifty thousand rupees for a month’ means TDS applies when it exceeds this amount. So Rs. 50,000 exactly does not trigger TDS; Rs. 50,001 does.
When to Deduct: Monthly at Credit or Payment
For Sl. 2(ii) (specified persons), TDS is deducted at the time of credit of rent to the payee’s account or at the time of actual payment, whichever is earlier. This means TDS is deducted every month when the rent is due or paid.
This is different from Sl. 2(i) (individuals/HUFs under Section 194IB) where TDS is deducted only once at the end of the year.
REIT Exemption
Section 393(4) Table Sl. No. 2 provides a specific exemption: no TDS is required on rent credited or paid to a Business Trust that is a Real Estate Investment Trust (REIT), in respect of any real estate asset referred to in Schedule V (Table Sl. No. 4) owned directly by that REIT.
This exemption ensures that REITs can receive rental income from their directly owned properties without TDS deduction, as the tax treatment flows through to the unitholders.
Example: A company occupies office space in a building owned directly by an Embassy REIT. It pays Rs. 5 lakh per month as rent. No TDS is required since the payee is a REIT and the property is directly owned by it.
Practical Compliance Checklist
- Check every month whether rent paid to any single landlord for a month exceeds Rs. 50,000. If yes, deduct TDS before payment.
- Apply the correct rate: 2% for machinery/plant/equipment and 10% for land/building/furniture/fittings. A mixed lease covering both should be split and the relevant rate applied to each portion.
- Deposit TDS with Form 26Q quarterly and issue Form 16A to the landlord annually.
- If the landlord is a REIT and the property is directly owned by it, no TDS is required. Obtain confirmation of REIT status from the landlord.
- If you obtained a lower TDS certificate from the landlord under Section 395, deduct at the rate in the certificate until it expires.
Rent TDS at 10% on buildings is one of the larger TDS obligations for companies with significant lease portfolios. For a company paying Rs. 5 lakh per month in office rent, the annual TDS outflow is Rs. 6 lakh. The landlord claims this as TDS credit in their ITR. Both sides should reconcile TDS amounts in their Form 26AS before the year closes.
