Section 194I – TDS on Rent | Rates, Threshold, Journal Entries (FY 2025-26)

Introduction of Section 194I – TDS on Rent

Section 194I mandates the deductions of tax deducted at source (TDS) on rent payments made to resident Indian provided the total annual rent exceeds a specified threshold. This section primarily applies to business and individuals or HUF whose accounts are subject to a tax audit.

Any person (other than an individual or HUF not liable for tax audit) who is responsible for paying rent to a resident shall deduct income tax at the earlier of:

Credit of rent to the account of the payee, or
Actual payment received on mode of either cash, cheque, draft, or any other mode.

Further, individuals or HUFs are also required to deduct TDS if their turnover in the preceding financial year exceeds:

₹1 crore in case of business, or
₹50 lakhs in case of profession.

Section_194I–TDS_on_Rent_Rates_Threshold_Journal Entries

Meaning of Rent under Section 194I

The term “rent” under Section 194I has a wide scope. It refers to any payment made under a lease, sub-lease, tenancy, or similar arrangement for the use of assets, irrespective of ownership.

Rent Includes Payment for Use of:

Land or building (including factory buildings)
Land appurtenant to a building (parking space, garden, etc.)
Machinery, plant, or equipment
Furniture and fittings

Both commercial and residential properties are covered under this section.

Important Note:

Refundable security deposit is not subject to TDS, as it is not income.
Advance rent (non-refundable) is subject to TDS.
Rent credited to a Suspense Account or any other account is deemed to be credited to the payee and attracts TDS.

When is TDS Deductible under Section 194I?

TDS on rent must be deducted at the earliest of:

Credit of rent to the payee’s account, or
Actual payment of rent.

Applicability of the Section 194I TDS

Section 194I applies when:

Rent is paid to a resident Indian only.
The payer is any person other than an individual or HUF not liable to tax audit us44AB.
TDS is deducted at the time of credit or payment, either is earlier.
Rent is must paid as part of any kind of lease or rental agreement.

Note: Rent paid to Non-Resident Indians (NRIs) falls under Section 195, not Section 194I.

Threshold Limits

From Financial year 2025-26 threshold is changed for TDS Section 194I

Earlier limit i.e. F.Y 24-25: ₹2,40,000 per annum
Revised limit i.e. F.Y 25-26: ₹50,000 each month (₹6,00,000 yearly)

No Tax Deduction at Source (TDS) needed if: Yearly rent is ₹6,00,000 or less.

For Individuals/Hindu Undivided Families (HUFs), TDS is only necessary if the prior year's revenue was more than:

₹1 crore (for businesses)
₹50 lakhs (for professional services)

Applicable TDS Rates under Section 194I

Nature of Asset	Section	TDS Rate
Machinery, Plant, Equipment	194I(a)	2%
Land, Building, Furniture, Fittings	194I(b)	10%

Rent Paid to NRI

TDS @ 30% + applicable surcharge + 4% cess
No threshold exemption available

Time of Deduction

TDS shall be deducted:

At the time of credit of rent to the payee’s account, or
At the time of actual payment, whichever is earlier.

Exemptions from TDS under Section 194I

No TDS on rent paid to a Real Estate Investment Trust (REIT) for specified real estate assets covered under Section 10(23FCA).
No TDS if total rent paid during the financial year does not exceed the prescribed threshold.

Suspense Account Provision

If rent is credited to a Suspense Account or any other account, such credit shall be deemed to be credited to the payee, and TDS provisions will apply accordingly.

Examples of TDS Section 194I

Example 1 (TDS 194I(a))

Let’s assumes where ABC Ltd. Leases office space from Mr. Sandeep at a monthly rent of 55,000. because the monthly rent surpasses the 50,000 threshold ABC Ltd is required to deduct TDS at 10% in the entire rent amount. Therefore, a TDS of 5,500 (10% of 55,000) will be deducted each month before remitting the balance to Mr. Sandeep.

Monthly TDS deducted ₹5,500 and submitted to Government portal
Net monthly payment to Sandeep = ₹49,500

Rent for April 2025 paid in May 2025; TDS deducted as applicable. Before making journal entries of ABC Ltd kindly make relevant ledger.

Sandeep (Tenant) Under Sundry Creditor
Office Rent Under Indirect Expense
TDS 194I(a) Under Current Liabilities
State bank of India Under bank

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
30.04.25	Office Rent		55,000
	To Sandeep (Tenant)			49,500
	To TDS 194I(a)			5,500
	(Being Office Rent booked)
01.05.25	Sandeep (Tenant)		49,500
	To State bank of India			49,500
	(Office Rent paid to Tenant)
07.05.25	TDS 194I(a)		5,500
	To State bank of India			5,500
	(Being TDS is deposited to Govt. Dept.)

Before making journal entries in the books of Sandeep. Kindly make relevant ledger

ABC Ltd Under Sundry Debtors
Office Space Under Income
TDS Receivable Under Current Assets
HDFC Bank Under Bank

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
30.04.25	ABC Ltd		55,000
	To Office Space			55,000
	(Being Office Rent booked)
01.05.25	HDFC Bank		49,500
	To ABC Ltd			49,500
	(Being April Month rent received)
20.08.25	TDS Receivable		5,500
	To ABC Ltd			5,500
	(Being 16A received amounting 5,500 against TDS Received no – XXXXX)

Example 2 (TDS 194I(b))

Let’s assumes where ABC Ltd. Machinery from Mr. Sandeep at a monthly rent of 55,000. because the monthly rent surpasses the 50,000 threshold ABC Ltd is required to deduct TDS at 2% in the entire rent amount. Therefore, a TDS of 1,100 (2% of 55,000) will be deducted each month before remitting the balance to Mr. Sandeep.

Monthly TDS deducted ₹1,100 and submitted to Government portal
Net monthly payment to Sandeep = ₹53,900

Rent for April 2025 paid in May 2025; TDS deducted as applicable. Before making journal entries of ABC Ltd kindly make relevant ledger.

Sandeep (Tenant) Under Sundry Creditor
Machinery Rent Under Indirect Expense
TDS 194I(b) Under Current Liabilities
State bank of India Under bank

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
30.04.25	Machinery Rent		55,000
	To Sandeep (Tenant)			53,900
	To TDS 194I(b)			1,100
	(Being Machine Rent booked)
01.05.25	Sandeep (Tenant)		53,900
	To State bank of India			53,900
	(Machine Rent paid to Tenant)
07.05.25	TDS 194I(b)		1,100
	To State bank of India			1,100
	(Being TDS is deposited to Govt. Dept.)

Before making journal entries in the books of Sandeep. Kindly make relevant ledger

ABC Ltd Under Sundry Debtors
Machine Rent Under Income
TDS Receivable Under Current Assets
HDFC Bank Under Bank

DATE	PARTICULARS	L.F.	AMOUNT	AMOUNT
30.04.25	ABC Ltd		55,000
	To Machine Rent			55,000
	(Being Machine Rent booked)
01.05.25	HDFC Bank		53,900
	To ABC Ltd			53,900
	(Being April Month rent received)
20.08.25	TDS Receivable		1,100
	To ABC Ltd			1,100
	(Being 16A received amounting 1,100 against TDS Received no – XXXXX)

Compliance Tips

Always verify the PAN of the landlord to avoid higher TDS.
Deposit TDS using Challan 281 within due dates.
File quarterly TDS returns in Form 26Q.
Issue Form 16A to the landlord within the prescribed time.

Summary

Section 194I governs TDS on rent paid to resident Indians.
Different TDS rates apply based on the nature of the asset.
Revised threshold limits applicable from FY 2025-26.
Proper compliance helps avoid interest, penalty, and disallowance of expenses.

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Section 194I – TDS on Rent | Rates, Threshold, Journal Entries (FY 2025-26)

Introduction of Section 194I – TDS on Rent