Section 194-I was introduced to ensure tax compliance on rental income. Under this section, any person (except individual/HUF not liable for tax audit) who pays rent to a resident is required to deduct TDS at the prescribed rate.

The term “rent” here is interpreted broadly — covering not just residential or commercial properties, but also plant and machinery, equipment, furniture, and fittings.

Applicability of Section 194-I

What is “Rent” Under Section 194-I?

Includes payments for the use of:

• Land, building (including factory),
• Plant, machinery, equipment,
• Furniture/fittings

TDS Rates Under Section 194-I

🔹Note: No surcharge or cess is applicable. Higher TDS @ 20% if PAN is not furnished.

 Exemptions / Non-Applicability

TDS is not required in the following cases:

• Rent paid by individuals or HUFs not covered under tax audit.
• Rent to government bodies/local authorities exempt under notification.
• Where aggregate rent paid during the year ≤ ₹6,00,000.
• Payments under Section 194-IB (covered separately for individuals/HUFs not under tax audit but paying rent > ₹50,000/month).

Step-by-Step Compliance Procedure

✅ Step 1: Check applicability

Is the payer subject to tax audit? Is the payee a resident? Does the rent exceed ₹6.0 lakhs?

✅ Step 2: Determine the type of asset

• Plant/Machinery/Equipment → TDS @ 2%
• Land/Building/Furniture → TDS @ 10%

✅ Step 3: Calculate and deduct TDS

At time of credit or payment, whichever is earlier.

✅ Step 4: Deposit TDS

• Monthly deposit by 7th of following month (30th April for March).

✅ Step 5: File TDS Returns (Form 26Q)

• Quarterly (Due on 31st July, 31st Oct, 31st Jan, 31st May)

✅ Step 6: Issue TDS Certificate (Form 16A)

• Within 15 days of filing TDS return.

Special Cases & Clarifications

• Security deposit not treated as rent unless adjusted against rent.
• Advance rent attracts TDS in the year of payment.
• If service elements are included in the rent (like electricity, maintenance), segregation must be done; TDS only on rent component.
• GST on Rent: TDS is applicable on rent excluding GST, if GST is separately mentioned in the invoice (as per CBDT Circular No. 23/2017).

Penalties & Consequences for Non-Compliance

Section 194-I was introduced to ensure tax compliance on rental income. Under this section, any person (except individual/HUF not liable for tax audit) who pays rent to a resident is required to deduct TDS at the prescribed rate.

The term “rent” here is interpreted broadly — covering not just residential or commercial properties, but also plant and machinery, equipment, furniture, and fittings.

Applicability of Section 194-I

What is “Rent” Under Section 194-I?

Includes payments for the use of:

• Land, building (including factory),
• Plant, machinery, equipment,
• Furniture/fittings

TDS Rates Under Section 194-I

🔹Note: No surcharge or cess is applicable. Higher TDS @ 20% if PAN is not furnished.

Exemptions / Non-Applicability

TDS is not required in the following cases:

• Rent paid by individuals or HUFs not covered under tax audit.
• Rent to government bodies/local authorities exempt under notification.
• Where aggregate rent paid during the year ≤ ₹6,00,000.
• Payments under Section 194-IB (covered separately for individuals/HUFs not under tax audit but paying rent > ₹50,000/month).

Step-by-Step Compliance Procedure

✅ Step 1: Check applicability

Is the payer subject to tax audit? Is the payee a resident? Does the rent exceed ₹6.0 lakhs?

✅ Step 2: Determine the type of asset

• Plant/Machinery/Equipment → TDS @ 2%
• Land/Building/Furniture → TDS @ 10%

✅ Step 3: Calculate and deduct TDS

At time of credit or payment, whichever is earlier.

✅ Step 4: Deposit TDS

• Monthly deposit by 7th of following month (30th April for March).

✅ Step 5: File TDS Returns (Form 26Q)

• Quarterly (Due on 31st July, 31st Oct, 31st Jan, 31st May)

✅ Step 6: Issue TDS Certificate (Form 16A)

• Within 15 days of filing TDS return.

Special Cases & Clarifications

• Security deposit not treated as rent unless adjusted against rent.
• Advance rent attracts TDS in the year of payment.
• If service elements are included in the rent (like electricity, maintenance), segregation must be done; TDS only on rent component.
• GST on Rent: TDS is applicable on rent excluding GST, if GST is separately mentioned in the invoice (as per CBDT Circular No. 23/2017).

Penalties & Consequences for Non-Compliance