Section 194-I outlines the rules for deducting tax at source (TDS) on rent. This applies to those earning income from rent or subletting. The TDS applies as rent is additional income for business people, salaried individuals, and others.
This guide is aimed at individuals paying rent for land, buildings, or various equipment.
Section 194I Overview
Why was TDS u/s 194I Introduced?
The Finance Act of 1994 included Section 194I for tax deductions on rent payments. This was implemented to tax rental income at the source, a practice also seen in other countries.
TDS on Rent Conditions
Definition of ‘Rent’ as per Section 194I
TDS Rate
No. |
Payment Type |
Tax Deduction Rate |
1 |
Plant, equipment and machinery rent |
2% |
2 |
Land, building, furniture or fitting rent |
10% |
Covered Payments under Section 194I
If a factory building is rented out, the rent is usually a business income for the lessor or owner. This is subject to tax deduction at source (TDS).
Service charges from business centres are included as rent.
If a building and furniture are rented by different people, tax needs to be deducted from the building rent only under Sec. 194I.
Under Sec. 194I, TDS is not required to be deducted monthly. It can be done quarterly or yearly based on the payment schedule.
Payments for cold storage facilities are considered as charges for plant use, not building use.
Associations have tax deduction obligations if the hall rent exceeds Rs 2,40,000.
If hotels charge only for catering/meals and not for use of premises, only Sec.194C applies for the catering part.