TDS on Rent: A Complete Reference Guide for FY 2025-26 & FY 2026-27

Team Gracia
Mar 3
3 min read

Paying rent for your office, factory, or residence? If the amount exceeds ₹50,000 per month, you are legally required to deduct TDS before making the payment. However, the rate, timing, and compliance requirements vary depending on who you are as a payer.

This guide covers both categories of rent payers under the current Income Tax Act, 1961 (FY 2025‑26) and the newly enacted Income Tax Act, 2025 (effective FY 2026‑27), so you stay compliant no matter when you are reading this.

The Two Categories of Rent Payers

The Income Tax Act draws a clear line between two types of rent payers. Your category determines your TDS rate, filing obligations, and compliance burden.

Category 1 — Specified Persons (Companies, Firms, LLPs, tax‑audited Individuals/HUFs): TDS at 10%

Category 2 — Individuals & HUFs not subject to tax audit: TDS at 2%

Category 1: Specified Persons (Subject to Tax Audit)

If you are a Company, Firm, LLP, or an Individual/HUF subject to tax audit in the preceding year, you fall under this category.

Governing Section: Sec 194‑I (IT Act, 1961) for FY 2025‑26 → Sec 393(1) [Table: Sl. No. 2(ii)] (IT Act, 2025) for FY 2026‑27

Key points for Category 1 payers:

TDS Rate: 10% on rent paid for land and building
Threshold: Rent exceeding ₹50,000 for a month or part of a month
When to deduct: At the time of credit or payment, whichever is earlier — every month
TAN: Mandatory — you must obtain a Tax Deduction Account Number
No PAN scenario: TDS rate jumps to 20% (Sec 206AA for FY 25‑26 / Sec 397(2)(b) for FY 26‑27)

Category 2: Individuals & HUFs (Not Subject to Tax Audit)

If you are an Individual or HUF not subject to tax audit, your compliance burden is lighter, but the obligation still exists.

Governing Section: Sec 194‑IB (IT Act, 1961) for FY 2025‑26 → Sec 393(1) [Table: Sl. No. 2(i)] (IT Act, 2025) for FY 2026‑27

Key points for Category 2 payers:

TDS Rate: Only 2% on rent paid for land and building
Threshold: Same ₹50,000 per month or part of a month
When to deduct: Once a year — from the rent of the last month of the financial year or the last month of tenancy
TAN: Not required — you can use your PAN for filing
No PAN scenario: Deduction is capped at the amount of rent for the last month (Sec 194‑IB(4) for FY 25‑26 / Sec 397(2)(e) for FY 26‑27)

Full Comparison: TDS on Rent Reference Chart

Here is a compiled side‑by‑side comparison of both categories across all key parameters. Save this chart for your records:

What Changed Under the Income Tax Act, 2025?

The new Act (effective FY 2026‑27) consolidates and restructures TDS provisions. While the substantive rules remain largely unchanged — the ₹50,000 threshold, the 10% and 2% rates, and the payer definitions all carry forward — the section references have moved:

Sec 194‑I and 194‑IB are now consolidated under Sec 393(1)
Category 1 maps to Table: Sl. No. 2(ii)
Category 2 maps to Table: Sl. No. 2(i)
No PAN provisions move from Sec 206AA to Sec 397(2)(b) and (e)

Practical impact: Update your internal templates, TDS challans, and compliance checklists to reflect the new section numbers starting April 2026. The obligation itself does not change.

Practical Compliance Tips

Collect PAN upfront — Always obtain the landlord's PAN before the first rent payment. Missing PAN triggers higher TDS rates or caps.
Category 1 payers: Obtain TAN and file quarterly TDS returns (Form 26Q). Issue Form 16A to the landlord.
Category 2 payers: File Form 26QC within 30 days of the financial year‑end (or tenancy end). Issue Form 16C to the landlord.
Don't skip or delay — Non‑deduction or late deduction attracts interest under Sec 201(1A) and potential penalties under Sec 271C.
Document everything — Keep rent agreements, payment receipts, PAN copies, and TDS certificates organised for audit purposes.

Need Help with TDS Compliance?

At Gracia Global Advisory LLP, we help businesses and individuals navigate TDS obligations with confidence — from computation to return filing to compliance reviews. Reach out to us today for a consultation.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws are subject to amendments. Please consult a qualified tax professional for advice specific to your situation.