Your Guide to Section 194I of the Income Tax Act


Introduced by the Finance Act, 1994, the Section 194-I emphasizes that an entity, whether an individual or H.U.F. who receives rental income is liable for a tax deduction at source (‘TDS’) when the income credited is more than Rs.1,80,000 during a financial year.

Definition of ‘Rent’ in regard to section 194I?

Any payment under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any – land, building (including factory building), land appurtenant to a building, machinery, plant, equipment, furniture or fittings whether owned by the payee.
Unlike the advance rent, no tax is to be deducted on refundable security deposits u/s 194I. Moreover, where any such rent is credited to ‘suspense account’ or to any other account shall also be liable to TDS.

At what point TDS is to be deducted?

One should deduct TDS and pay tax direct online at the time of credit of rental income to the payee’s account or at the time of cash payment or by the issue of a cheque or draft or by any other mode, whichever is earlier.
At what rate TDS is to be deducted?
TDS shall be deducted at the rate of:
·         2% for the use of any machinery or plant or equipment; and
·         10% for the use of land or building (including building) or land appurtenant to a building  (including factory building) or furniture or fittings

Are there any Exceptions to deduction of taxes under Sec 194I?

·         As per the direct taxation provisions, no deduction shall be made if the aggregate amounts of rent credited or paid do not exceed INR 1.8 lacs during the financial year

·         No deduction if rent being paid or credited is to a business trust, being a REIT

·         No deduction shall be made if the payee is Government or local authorities

·         An application can be made to the Assessing Officer for no TDS or TDS to be collected at lower rates in case the total income of the applicant justifies does not exceed the taxable limit

·         No TDS where the tenant is an individual or HUF, who is not liable for tax audit in the preceding year

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