JASMINE KAUR HUDA
Chartered Accountant
Published on: Mar 27, 2026
TDS on Rent, Professional Fees & Contracts
Tax Deducted at Source (TDS) is a critical part of compliance with the Rules of the Income-tax Act, 1961. The most prominent uses of TDS are for rental payments, payment of professional services and contractual payments. If a taxpayer does not correctly deduct or delays in deducting TDS, they may receive interest, penalties and notices. In this article, we will discuss when TDS applies, the rates and thresholds applicable to TDS and the common mistakes taxpayers make when deducting TDS. We will explain these concepts clearly and simply.
1. TDS on Rent (Section 194I & 194IB)
What is considered Rent?
Rent includes any payment made for the use of:
- Land or building
- Factory premises
- Office space
- Machinery or equipment
- Furniture and fittings
Applicability
TDS on rent is applicable when the annual rent exceeds ā¹2,40,000.
TDS Rates
- 10% ā Rent of land, building, furniture, fittings
- 2% ā Rent of plant, machinery, or equipment
Who should deduct?
- Individuals, firms, companies, LLPs, AOPs, etc.
- Even individuals not liable to tax audit must deduct TDS if rent exceeds the limit (under Section 194IB).
Special case ā Section 194IB
- Applicable to individuals/HUFs not liable to audit
- TDS rate: 5%
- Deducted once in a year (last month of tenancy)
2. TDS on Professional Fees (Section 194J)
What are Professional Fees?
Payments made for services rendered by:
- Chartered Accountants
- Lawyers
- Doctors
- Engineers
- Consultants
- Architects
- Technical service providers
Applicability
TDS is applicable if payment exceeds ā¹30,000 in a financial year per professional.
TDS Rates
- 10% ā Professional services
- 2% ā Technical services and call center services
Key Points
- GST is not included for TDS calculation if shown separately in the invoice
- TDS applies even if services are taken on a one-time basis
3. TDS on Contracts (Section 194C)
What is a Contract?
Any agreement for carrying out work, including:
- Construction work
- Job work
- Transport services
- Advertising
- Catering
- Labour contracts
Applicability
TDS must be deducted if:
- Single payment exceeds ā¹30,000, or
- Aggregate payment exceeds ā¹1,00,000 in a financial year
TDS Rates
- 1% ā Payment to individuals or HUFs
- 2% ā Payment to others (firm, company, LLP)
Transporter Exception
No TDS if:
- Transporter owns 10 or fewer vehicles, and
- PAN is furnished
4. When to Deduct and Deposit TDS?
Deduction
- At the time of credit to the account, or
- At the time of payment, whichever is earlier
Deposit Due Dates
- TDS deducted in a month must be deposited by 7th of the next month
- For March, due date is 30th April
5. TDS Returns & Certificates
- Quarterly TDS Return ā Form 26Q
- TDS Certificate ā Form 16A (issued quarterly)
Timely filing ensures that the deductee gets proper credit in Form 26AS.
6. Common Mistakes to Avoid
- Not deducting TDS due to ignorance
- Deducting TDS on GST component
- Wrong TDS rate
- Delay in deposit or return filing
- PAN not obtained from vendor (leads to higher TDS @20%)
Conclusion
Like many areas of compliance, Taxes Deducted at Source (TDS) on rent, professional fees, and contracts can present certain risks ā even small errors can result in the issuance of notice, assessment of interest and penalties. Regularly reviewing payments, ensuring correct classification, and filing timely will assist in preventing disputes with your tax department. When determining the rate, section, or applicability, it is recommended to obtain professional assistance.