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Section 194I splits into 10 percent for land, building, furniture, and fittings and 2 percent for plant, machinery, and equipment, with a ₹2,40,000 per-landlord annual threshold. Multi-city office portfolios, incorrect TDS on refundable security deposits, and co-working vs lease classification are the three recurring error modes.
Tag each lease in the property master with asset type (building vs plant) and the corresponding rate, and record the landlord's PAN and TAN. Suppress TDS on security deposits — only rent is in scope. Classify co-working arrangements that grant shared access with services as 194J at 2 percent, not 194I. Map each monthly rent payment to the property-level TAN for reconciliation.
Property master with asset-type rate (10 percent or 2 percent). Deposit-vs-rent flag suppressing TDS on refundable deposits. Co-working engagement flag routing to 194J classification.
Correctly rated rent TDS across multi-city portfolios, zero erroneous deductions on security deposits, and Form 26AS reconciliation keyed to property-level TAN for each lease.
TDS under section 194I on rent is a mandatory compliance obligation for any Indian company that pays rent exceeding ₹2,40,000 per year to a single landlord. The split rate structure — 10% for land and buildings, 2% for plant and machinery — and the proliferation of multi-city office leases make 194I one of the more complex TDS sections for corporate accounts payable teams to reconcile. This article is written for finance controllers managing office portfolios across multiple locations.
What Section 194I Is
Section 194I requires any person (other than individuals and HUFs below the tax audit threshold) to deduct TDS on rent payments to a resident. Rent is defined as any payment for use of land, building, furniture, fittings, plant, machinery, or equipment. The rates are:
- 10% for land, building, furniture, and fittings
- 2% for plant, machinery, and equipment
The threshold is ₹2,40,000 per year per landlord, which equals ₹20,000 per month. Any corporate office lease above ₹20,000/month triggers the 194I obligation from the first payment, not only after the threshold is crossed.
Where Reconciliation Issues Arise
Multi-City, Multi-TAN Office Portfolios
A company with offices in Mumbai, Bengaluru, Chennai, and Hyderabad will have four separate landlords, each with a different PAN and TAN. The company (as deductor) files one TDS return per quarter covering all four deductions, but each entry carries a different TAN. If the landlord’s Form 26AS is being reconciled from the receiving side, it shows four separate deductor entries. Without a property-level mapping table linking each TAN to a specific lease, the reconciliation exercise defaults to manual lookup.
Incorrect TDS on Security Deposits
Security deposits are routinely included in the first month’s payment alongside the first rent instalment. Some accounts payable systems calculate TDS on the total first payment — rent plus deposit — instead of on rent alone. The erroneous TDS deduction on the deposit creates an UNEXPLAINED variance in Form 26AS that cannot be offset against any legitimate income entry in the landlord’s books.
Co-Working vs Rent Classification
Co-working spaces have grown substantially in tier-2 Indian cities since 2020. The classification of co-working charges under 194I (rent) or 194J (technical services) depends on the contract structure. If the agreement grants a dedicated private office with no shared services, 194I at 10% is defensible. If the agreement is a service agreement for a flexi-desk with bundled amenities, 194J at 2% is more appropriate. A misclassification at 10% instead of 2% results in an 8% over-deduction that the service provider must recover.
Section 194I Scenario Reference Table
| Scenario | Section | Rate | Notes |
|---|---|---|---|
| Corporate office lease (building) | 194I | 10% | Applies if annual rent > ₹2,40,000 |
| Warehouse / factory rent | 194I | 10% | Land and building component |
| Generator / UPS hire | 194I | 2% | Plant and machinery |
| Co-working (service contract) | 194J | 2% | Service, not rent, in most agreements |
| Residential accommodation for employee | 194I | 10% | If company leases and provides to employee |
| Security deposit (refundable) | Not applicable | — | Not rent; TDS deduction is an error |
Reconciling 194I in Enterprise Finance Contexts
For a company with 10 office locations, a single quarter generates 10 TDS deductions under 194I with 10 different TANs. The accounts payable team must confirm that each challan was deposited by the 7th of the following month and that all 10 entries appear correctly in the quarterly TDS return (Form 26Q). The landlord, receiving rent from a corporate tenant, must verify that the deductor TAN in Form 26AS matches the TAN on the TDS certificate (Form 16A) provided by the tenant.
TDS reconciliation software that applies TAN-based counterparty matching before amount comparison resolves the multi-location problem by grouping each deductor TAN with its corresponding lease record. TransactIG’s signal model assigns a weight of 0.15 to the counterparty (TAN) signal, enabling correct grouping even when the amount varies month to month due to rent escalation clauses. The ROUNDING variance code handles the minor differences that arise when TDS is calculated on a monthly basis versus the annual aggregate method.
For group companies managing 50 or more leases across entities and cities, reconciliation software India-wide coverage ensures all 194I deductions and receipts are tracked in one workspace, with a property-to-TAN mapping table that eliminates manual lookup for each quarter’s reconciliation.
Section 194I rates, thresholds, and the distinction between rent and service charges are published on the Income Tax India e-filing portal.
New Income Tax Act 2025: Section 194I Remapping
Effective April 1, 2026, Section 194I is replaced by Section 393(1), Table Serial No. 2(ii) under the Income Tax Act 2025, with additional provisions under Section 393(4), Table Serial No. 2. Payment codes are 1008 (2% for plant and machinery) and 1009 (10% for land, building, furniture, and fittings). The definition of “rent” now explicitly includes factory buildings and appurtenant land under Section 402(29).
Threshold change
The threshold moves from ₹2,40,000 per year to ₹50,000 per month (effectively ₹6,00,000 per year). This is a significant increase — many smaller rental arrangements will fall below the new threshold and no longer require TDS deduction.
What changes for reconciliation
- Payment codes 1008/1009 replace the old section reference in challans and returns (Form 140, replacing Form 26Q)
- TDS certificates shift from Form 16A to Form 131
- The monthly threshold basis (₹50,000/month) replaces the annual basis — reconciliation systems must track on a per-month basis
- Section 194-IB (rent by individuals/HUF, now Section 393(1) Sl.2(i), Code 1007) continues separately at 2%
- Correction statements for old-Act periods limited to 2 years under Section 397(3)(f)