Yes, unless you are an individual or HUF below the turnover line in the second proviso, and unless the rent is Rs 50,000 or less for the month. The rate is 2% for machinery, plant or equipment and 10% for land, building, land appurtenant to a building, furniture or fittings, and it is deducted on the rent excluding GST where the GST is shown separately. The Rs 50,000 monthly threshold replaced an annual Rs 2,40,000 threshold for rent credited or paid from 1 April 2025, so the unit of the test changed and not only its size.
Section 194-I is the general rent deduction, and it is one of the two or three obligations that catch the largest number of ordinary businesses. The statutory language quoted on this page comes from the departmental text of s.194-I at incometaxindia.gov.in/w/section-194-i-19, whose footnote records the last substitution as by Act No. 7 of 2025 with effect from 1 April 2025. The bare-slug page for the same section on the same site, /w/section-194-i, is an old snapshot dated 2015 and still shows a Rs 1,80,000 threshold. Two pages, one section, different law. Work from the numbered one and read its footnote before quoting anything.
Who has to deduct. The obligation falls on "Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent". Two consequences follow immediately. The payee must be a resident, so rent to a non-resident landlord is outside s.194-I altogether and belongs to s.195. And an individual or HUF is outside the section by default, but not always: the second proviso brings back in "an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid". That proviso is often described as catching an individual or HUF whose accounts were subject to audit under s.44AB. The text now on the departmental page does not say that. It sets out its own turnover figures and applies them to the immediately preceding financial year, whether or not an audit was in fact done or was excused. Earlier versions of the proviso did cross-refer to the monetary limits in s.44AB, so for a year before that change the proviso has to be read as it then stood.
The threshold, and the year it moved. The first proviso now reads: "no deduction shall be made under this section, where the income by way of rent credited or paid for a month or part of a month by such person to the account of, or to, the payee, does not exceed fifty thousand rupees". The department's own threshold table for AY 2026-27 states the same figure as "If amount paid or payable for a month or part of a month doesn't exceed Rs. 50,000". The substitution was made by the Finance Act 2025 (Act No. 7 of 2025), expressed to take effect from the 1st day of April 2025.
Be careful with that date. For a charging provision, "with effect from the 1st day of April, 2025" would mean assessment year 2025-26. Section 194-I is not a charging provision. It is a deduction obligation that attaches when rent is credited or paid, and it runs on financial years. So the monthly threshold governs rent credited or paid on or after 1 April 2025, which is financial year 2025-26 onwards. The two ways of stating it are not interchangeable and should never be silently swapped.
What went before matters, because most of the arguments are about old years. For financial years 2019-20 to 2024-25 the threshold was Rs 2,40,000 for the financial year, an annual aggregate; it had been raised to that figure from Rs 1,80,000 with effect from 1 April 2019. The 2025 change is not only a change in size, it is a change in unit, and that is where practitioners go wrong on an old year. The old test aggregated the whole year's rent to one payee; the new one is applied to each month or part of a month. A tenant paying Rs 45,000 a month, Rs 5,40,000 for the year, was inside the old net and is outside the new one. A single month's rent of Rs 55,000 with nothing else in the year is inside the new net and was never inside the old one. Testing an FY 2023-24 payment against Rs 50,000 a month, or an FY 2025-26 payment against Rs 2,40,000 a year, produces the wrong answer in both directions.
The two rates. Section 194-I fixes tax "at the rate of - (a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings". There is no surcharge or cess on top for a resident payee. A composite payment - one monthly figure for a fitted-out unit with the machinery in it - has to be characterised, because the rate turns on what the payment is for. Where the agreement or the invoice separates the two components, deduct at 2% on the plant and equipment element and 10% on the premises, furniture and fittings element, and keep the split on the file. Where it does not, the deductor has to take a view on what the arrangement is in substance and be able to explain it; the safe course where the premises plainly dominate is 10%, since the exposure on a short deduction is the shortfall plus interest rather than the whole amount. A missing PAN brings s.206AA into the picture, which is not dealt with here.
What "rent" means, and the clause that catches people. The Explanation is deliberately wide: "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any of - land; building (including factory building); land appurtenant to a building (including factory building); machinery; plant; equipment; furniture; fittings - "whether or not any or all of the above are owned by the payee". Three things come out of that. There need be no lease and no landlord-and-tenant relationship: "any other agreement or arrangement" is enough. The label on the document is irrelevant. And the payee need not own the asset, which is the clause most often missed - a sub-lessee passing on premises, a licensee, an aggregator or an intermediary letting space it has itself taken on rent is a payee of rent for this section. The second limb of the Explanation adds that where the amount is credited to a suspense account or any similarly named account, that crediting is deemed to be a credit to the payee's account and the section applies accordingly, so parking the liability does not postpone the deduction.
What s.194-I does not reach. The list of eight assets is closed, and width of language is not the same as width of reach. Where the payer does not get the use, possession or occupancy of an identified asset but is buying an outcome that the owner produces using his own asset, the payment is not rent however much land or machinery is involved in producing it. That is the line the Supreme Court drew on landing and parking charges paid to an airport, holding that they buy a package of air traffic, safety and communication services with use of the tarmac merely incidental; and it is the line the Bombay High Court drew on transmission and wheeling charges, holding that each of the arrangements the Explanation contemplates carries an element of possession or periodical occupancy which carrying power over somebody else's network does not involve. The Board took the same route on cold storage: the main function is preservation by a mechanical process, storage is incidental, the customer gets no demarcated space, and the payment goes to s.194C and not to s.194-I. So the practical question is not "does this involve land or plant" but "does the payer get the use of an identified asset, or is he buying a service the owner performs".
Hotel accommodation. Circular No. 715 dated 8 August 1995 answered, at question 20, that payments made by persons other than individuals and HUFs for hotel accommodation taken on a regular basis are in the nature of rent subject to deduction under s.194-I. Circular No. 5/2002 dated 30 July 2002 went back to that answer and drew the line that actually decides most cases. Where earmarked rooms are let out for a specified rate and a specified period, that is accommodation made available on a regular basis and s.194-I applies. A rate contract is different: it is a contract for providing specified types of hotel rooms at pre-determined rates, with no obligation on the hotel to provide a room or a specified set of rooms, and occupancy under it is occasional. Section 194-I does not apply to a rate contract. So the corporate tariff arrangement a company signs with a hotel chain for whoever happens to travel is normally outside the section, while a block of rooms reserved for the year at an agreed rate is normally inside it. Read the agreement, not the invoice.
Warehousing and cold storage. Circular No. 718 dated 22 August 1995 treats warehousing charges as rent within the definition in s.194-I and subject to deduction. Circular No. 1/2008 dated 10 January 2008 takes cooling charges paid to a cold storage owner the other way and puts them in s.194C. The distinction is not a quibble: warehousing is the letting of space to hold goods, while cold storage is a preservation process in which the customer never gets a right to use a demarcated space or the machinery and never becomes a tenant. Where a contract is described as warehousing but is really a handling, preservation and logistics service, and where a contract is described as a service but in truth gives the customer an identified bay or chamber, the description will not save either side. Circular 718 also settles three smaller points: a non-refundable deposit is rent and bears deduction, a refundable deposit does not; where municipal taxes and ground rent are borne by the tenant, no tax is deducted on that sum; and the definition reaches a part or portion of land or a building, not only a whole one.
Business centres and shared office space. Circular No. 715 answered, at question 23, that a company taking premises on rent under an agreement styled a business centre agreement is within s.194-I, because "The tax is to be deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Explanation to section 194-I." Question 24 goes further: where the arrangement is composite, covering the use of premises together with the provision of manpower, and the consideration is a percentage of turnover, s.194-I applies if the composite arrangement is in essence an agreement for taking premises on rent. Managed-office and co-working agreements sit squarely in this territory. The question to put is whether the operator has given the payer identified space to occupy, with the services wrapped round it, or is running a facility to which the payer has access.
Service tax and GST on the rent. Deduct on the rent, not on the indirect tax, provided the indirect tax is shown separately. Circular No. 4/2008 dated 28 April 2008 (F. No. 275/73/2007-IT(B)) established this for s.194-I on the reasoning that service tax paid by the tenant does not partake of the nature of income of the landlord, who is only a collecting agency for the Government, so deduction "would be required to be made on the amount of rent paid/payable without including the service tax". Circular No. 1/2014 dated 13 January 2014 (F. No. 275/59/2012-IT(B)) extended the same treatment across Chapter XVII-B where the service tax component is shown separately in the agreement, and Circular No. 23/2017 dated 19 July 2017, under the same F. No., carried it into the new regime: "tax shall be deducted at source under Chapter XVII-B of the Act on the amount paid or payable without including such 'GST on services'." The condition is that the GST on services is indicated separately. If the rent agreement or the invoice shows one inclusive figure, the concession has nothing to work on.
Where s.194-IB and s.194-IC come in. An individual or HUF who falls outside the second proviso to s.194-I is not simply free: s.194-IB puts a separate obligation on that person where rent for land or building exceeds Rs 50,000 for a month or part of a month, on a different mechanic - one deduction, in the last month of the year or of the tenancy, with a challan-cum-statement and no TAN. The two sections do not overlap, and which of them applies turns entirely on the payer's preceding-year turnover. Section 194-IC is a different animal again: it opens "Notwithstanding anything contained in section 194-IA" and requires 10% on any sum by way of consideration, not being consideration in kind, paid to a resident under a joint development agreement of the kind referred to in s.45(5A). Monetary consideration under a development agreement is not rent and is not tested against the s.194-I threshold. The detail of s.194-IA, s.194-IB and s.194M is set out separately and is not repeated here.
If no deduction is made. The consequences are the ordinary Chapter XVII-B ones and are dealt with on their own pages: 30% of the sum is disallowed under s.40(a)(ia) with a right to claim it in the year the tax is eventually paid; the first proviso to s.201(1) takes the deductor out of assessee-in-default status where the resident payee has filed a return, taken the sum into account and paid the tax, on an accountant's certificate in Form 26A; and interest under s.201(1A) runs at 1% a month from the date the tax was deductible where it was not deducted, and at 1.5% a month from deduction to payment where it was deducted and not paid. A rent classification dispute usually surfaces as short deduction rather than non-deduction - 2% where 10% was due, or s.194C where s.194-I was due - and the demand is then on the shortfall. None of that is restated here.
Getting the deduction reduced. Section 194-I is one of the sections named in s.197(1), so the landlord can apply for a certificate authorising deduction at a lower rate or no deduction, and the deductor then acts on the certificate the landlord produces. The self-declaration route is open as well, and this is a point on which the departmental site will mislead you. Section 197A was amended by the Finance Act 2016, with effect from 1 June 2016, so that a recipient of rent within s.194-I could file a self-declaration in Form 15G or Form 15H and stop the deduction where the tax on his estimated total income for the year will be nil. The Finance Bill 2016 carries the amendment at clause 84, headed "Amendment of section 197A", and the Budget memorandum's own words were that the existing provisions of s.197A were being amended "for making the recipients of rent also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source". Every reproduction of s.197A on incometaxindia.gov.in is older than that. Eight forms of that page were opened; the fullest of them, /w/section-197a-9, stops at a 2012 footnote, and none of them names s.194-I in sub-section (1A) or in sub-section (1C). That is an old page, not a narrow section, and an omission on a page that predates the amendment proves nothing about what the section now says. Rule 29C, which is current, is a further sign that those pages are incomplete: it prescribes Form No. 15G for a declaration "under sub-section (1) or under sub-section (1A) of section 197A" and Form No. 15H for one "under sub-section (1C) of section 197A", and several of the departmental s.197A pages do not print a sub-section (1C) at all. So a landlord whose total income will be below the taxable limit can stop the deduction with a Form 15G, or with a Form 15H if he is sixty or more, and a deductor who refuses the declaration and sends him off for a s.197 certificate is demanding something he does not need. Take the declaration, keep it on the file and report it in the quarterly statement.
Co-owners. Circular No. 715 answered, at question 21, that where there are a number of payees "each having definite and ascertainable share in the property", the threshold applies "to each of the payee/co-owner separately". The figure named in the 1995 answer was the annual Rs 1,20,000 then in force, but the principle is about the unit of testing rather than the amount: the threshold is tested payee by payee. Applied to the current monthly limit, a building held by four co-owners in equal definite shares and let for Rs 1,60,000 a month yields Rs 40,000 to each, and no deduction arises. What makes this work is the definite and ascertainable share, which means separate rent receipts or a lease naming the shares, separate PANs and payment to each owner. Where the rent is paid as one sum to one person and split privately afterwards, the arrangement does not answer the description in the circular.
Under the Income-tax Act, 2025 the rent deduction is carried into the Table to s.393(1) at serial 2(ii): "Any income by way of rent", at 2% for the use of any machinery or plant or equipment and 10% for the use of any land, or building (including factory building), or land appurtenant to a building (including factory building), or furniture, or fittings, with the threshold stated as Rs 50,000 for a month or part of a month. Serial 2(i) of the same Table carries the s.194-IB obligation. The substance of the 1961 Act provision, including both rates and the monthly threshold, is preserved.
The rent deduction reaches almost every business that occupies premises it does not own, and the two mistakes it produces are both expensive and both avoidable. The first is the threshold: a firm that tests an old year against the current monthly limit will wrongly conclude that no deduction was due, and a firm that tests a current year against the old annual figure will wrongly conclude the same, because the unit of measurement changed as well as the number. The second is characterisation - hotel bookings, warehousing, cold storage, business centres, wheeling charges - where the department reads "any other agreement or arrangement for the use of" as if it converted every payment touching land into rent, and the answer is that the payer must actually get the use of an identified asset. Getting either wrong turns a 2% or 10% question into a 30% disallowance plus interest several years later.
I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
We sell prepaid SIMs and vouchers to distributors below list price. Is that margin commission under 194H?
I deducted TDS during the year but paid it after 31 March, though before I filed my return — can the expense still be disallowed under section 40(a)(ia)?
We paid stock exchange transaction charges without TDS. Are those fees for technical services under 194J?
My Indian payer did not deduct tax at source and paid me gross. The Assessing Officer says I should have paid advance tax and has charged s.234B interest. Which years can he do that for?
I did not deduct TDS, but the person I paid has already paid tax on it. Can the department still recover it from me?
We pay landing and parking charges to the airport. Is that rent under 194-I at the higher rate?
I already paid my sub-contractors during the year and nothing was outstanding at 31 March — can section 40(a)(ia) still disallow the expense for not deducting TDS?
Every page in this library links to what it was written from, so you can check it rather than take our word for it.