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What is Section 194I or TDS on rent?

The person who is paying rent is liable to deduct tax at source. But there is a TDS threshold for deduction of tax on rent. The TDS threshold has been made Rs 2,40,000 for the FY 2020-21 but until FY 2018-19 it was Rs. 1,80,000.

What all services come under the term "Rent"?

Rent is basically the form of payment for providing some land, plants, etc on lease, tenancy, or sub-lease based on certain agreement between two parties.
The following entities, when given for some payment, can be considered under rent :
1) land
2) Building/factory building
3) Equipment
4) Furniture
5) Land appurtenant to a building
6) Plant
7) Machinery
8) Fittings

If the owner collects a deposit money which he will return to the tenant at later end then that would not be considered under TDS. However, if it is not subject to return then it would be considered under deduction at source u/s 194I.

The payments that are covered u/s 194I?

1) Letting out of factory building
If you let out your factory then its considered under income from business for the owner of factory. In some cases, the income obtained from the property goes in the lessor hands. But even in that case, the payment is business income in the hands of the lessor, for which the lessor will madatorily be paying advance tax and ultimately by returning it to the rental income, which will be subject to tax deductions at source or TDS.

2) Rent not payable on monthly basis
In TDS deduction on rent is not mandatory to deduct taxes on a monthly basis, and taxes should be deducted at source at the time of payment, be it quarterly or yearly.

3) Payments given to hotels for conducting seminars with lunch
Hotels that charge only for catering services but not for the using premise is not considered under provisions of Sec. 194I. However, Sec.194C would be applied only on the catering part.

4) Rent includes service charges
Business centers that charge as Service charges would be covered under the definition of rent, as they cover payments by whatever name is called.

5) Association paying rent for hall
Since the association cannot be considered an individual or HUF, the tax deduction will only be there if the payment for the use of the hall is more than Rs.2,40,000.

6) Charges regarding cold storage facility
When your place is used for storing milk, ice cream, and vegetables the payment may be considered as the charges for use of plant. Cold storage areas are considered under plant.

The rate of tax deduction for rent

The tax to be deducted for rent of Plant, Machinery or Equipment is 2%. The tax to be deducted for rent of land, building or furniture or fitting to an individual or HUF or others is 10%

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FAQs Section

    The TDS is required to be deducted if the rent paid or payable is more than 2,40,000 in a financial year.
    In appropriate cases, you would have to submit an application of FORM-13 to obtain a certificate from the Assessing Officer for no deduction of income-tax or at a lower rate in appropriate cases.
    No. Since the service tax paid by the tenant won't act as a source of income for owner. So TDS on rent should be applied only to the rent paid without service tax.
    There are various conditions on which the tax deducted at source on rent is not applicable, some of them are as follows:-
    Where the total amount of rent is less than Rs. 2,40,000.
    Rent is paid to the government and those entities who are exempt from income tax.
    Those entities who file the return under Sec. 139(4A) or 139(4C).
    Those entities whose income is unconditionally exempt under Sec. 10
    Wherever the share of each co-owner in the property is definite and ascertainable, the limit of Rs. 2,40,000 will be applicable to each co-owner separately.
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