Rent, Specified Person and Salary: TDS Defined Terms in the Income Tax Act 2025
Section 402 of the Income-tax Act, 2025 is the dictionary for the TDS and TCS chapter. It defines 47 terms, and three of them decide most real cases: rent (clause 29), specified person (clause 37) and person responsible for paying (clause 27, which is where salary payers are identified). The key number is the turnover test for a specified person: more than Rs 1 crore for business or Rs 50 lakh for profession in the preceding tax year.
This guide explains those terms, a few neighbouring ones, and how they change the TDS you deduct. One point first: sections 402 and 2 do not define the word "salary" itself. Salary comes into section 402 through the payer definition, and into the Act through the head "Salaries" and sections such as 17 (perquisite) and 392 (TDS on salary). Everything below is read from the Act as amended by the Finance Act, 2026, for tax year 2026-27.
Why do these defined terms matter for TDS?
Section 402 opens with "For the purposes of this Chapter". So the meanings apply to the TDS and TCS chapter (which includes sections 392 to 394), not to the rest of the Act. A word like "rent" can have a wider or narrower meaning in your head than in section 402, and the rate and threshold on a payment often turn on that difference.
| Term | Where defined | What it decides |
|---|---|---|
| Rent | Section 402(29) | Whether a payment falls under the rent row of section 393(1), Table Sl. No. 2 |
| Specified person | Section 402(37) | Which rent row applies, and so whether the rate is 2% or 10% |
| Person responsible for paying | Section 402(27) | Who must deduct tax: employer, company or its principal officer, drawing and disbursing officer |
| Professional services | Section 402(28) | Which services count as professional for TDS |
| Immovable property | Section 402(19) | Land (other than agricultural land), building or part of a building |
| Commission or brokerage | Section 402(7) | What is covered by the commission row |
What does "rent" mean under section 402(29)?
Rent is any payment, by whatever name called, under a lease, sub-lease, tenancy or any other agreement or arrangement for the use of any of these, separately or together:
- land;
- a building, including a factory building;
- land appurtenant to a building (the land that goes with it);
- machinery, plant or equipment;
- furniture or fittings.
Two things stand out. The name of the payment does not matter, so "licence fee", "hire charges" or "usage charges" can still be rent if the arrangement is for the use of these assets. And it does not matter whether the payee owns the asset, so a tenant who sub-lets and receives money is also receiving rent.
The definition then narrows itself for one row. For section 393(1), Table Sl. No. 2(i) (payers who are not specified persons), only land, buildings and appurtenant land count as rent. Hire of machinery, plant, equipment, furniture or fittings is not rent there. It becomes rent only under Sl. No. 2(ii), for specified persons.
Who is a "specified person"?
Section 402(37) gives two limbs:
- Limb (a): any person who is not an individual or a Hindu undivided family. "Person" in section 2(77) includes a company, a firm, an association of persons or body of individuals, a local authority and any other artificial juridical person, so all of these are specified persons automatically.
- Limb (b): an individual or HUF whose total sales, gross receipts or turnover from business or profession exceeded Rs 1 crore (business) or Rs 50 lakh (profession) in the tax year immediately preceding the tax year in which the income or sum is credited or paid.
"Exceed" means strictly more. A professional with gross receipts of exactly Rs 50,00,000 last year is not a specified person this year. The test looks at the preceding tax year, so a business that crosses Rs 1 crore during 2026-27 becomes a specified person for payments from tax year 2027-28.
If an individual or HUF has both business and profession receipts, the clause speaks of "business or profession" with a separate limit for each. The text does not say how to combine them, so a mixed case needs a careful reading of the facts.
How does being a specified person change TDS on rent?
| Not a specified person (Sl. No. 2(i)) | Specified person (Sl. No. 2(ii)) | |
|---|---|---|
| Assets counted as rent | Land, building, appurtenant land only | All eight asset types in section 402(29) |
| Rate | 2% | 2% for machinery, plant, equipment; 10% for land, building, appurtenant land, furniture, fittings |
| Threshold | Rs 50,000 for a month or part of a month | Rs 50,000 for a month or part of a month |
The deduction timing, deposit dates and forms differ between the two rows. Our guide to TDS on rent under the Income Tax Act 2025 covers those.
Worked example 1: is the payer a specified person? (tax year 2026-27)
Assumption: each person below pays rent during tax year 2026-27, so the test looks at tax year 2025-26.
| Payer | Gross receipts / turnover, 2025-26 | Limit | Result |
|---|---|---|---|
| Dr Meena, individual doctor (profession) | Rs 48,00,000 | Rs 50,00,000 | 48,00,000 is not more than 50,00,000: not a specified person |
| Ravi, individual trader (business) | Rs 1,10,00,000 | Rs 1,00,00,000 | 1,10,00,000 exceeds 1,00,00,000: specified person |
| Sharma & Sons, a partnership firm | Rs 20,00,000 | Not applicable | Not an individual or HUF: specified person under limb (a), whatever its turnover |
Worked example 2: rent TDS for a specified person (tax year 2026-27)
Assumptions: Ravi (above) is a specified person. He pays Rs 80,000 a month for a shop building and Rs 60,000 a month to a different party for hiring machinery. Both exceed the Rs 50,000 monthly threshold on their own.
| Step | Shop building | Machinery |
|---|---|---|
| Row of the Table | Sl. No. 2(ii)(b) | Sl. No. 2(ii)(a) |
| Monthly rent | Rs 80,000 | Rs 60,000 |
| Rate | 10% | 2% |
| Tax per month | 80,000 x 10% = Rs 8,000 | 60,000 x 2% = Rs 1,200 |
| Twelve months | 8,000 x 12 = Rs 96,000 | 1,200 x 12 = Rs 14,400 |
If Ravi were not a specified person, the machinery hire would not be "rent" at all under section 402(29) for Sl. No. 2(i), and the shop rent would attract 2% instead of 10%: 80,000 x 2% = Rs 1,600 per month on the monthly figure. The definition of specified person alone moves the shop-rent rate five-fold. (For Sl. No. 2(i), the time of deduction is set by Note 1 and is different from the monthly cycle above; see the rent guide.)
Who is the "person responsible for paying" salary?
TDS on salary is deducted by the person responsible for paying under section 392(1). Section 402(27)(a) says that for income chargeable under the head "Salaries", other than payments by the Central or a State Government, this is:
- the employer himself; or
- if the employer is a company, the company itself, including its principal officer.
For salary paid by the Central or a State Government, clause 27(f) applies instead: the drawing and disbursing officer, or any other person, by whatever name called, responsible for crediting or paying the sum. For other payments (such as rent or fees), clause 27(e) points to the payer himself, or the company itself including its principal officer.
"Principal officer" is defined in section 2(85). For a company or body it means the secretary, treasurer, manager or agent, or any person connected with its management or administration on whom the Assessing Officer has served a notice of intention to treat him as the principal officer.
What does "salary" mean in the Act's definitions?
Sections 2 and 402 do not carry a stand-alone definition of "salary". What they do is refer to the head "Salaries" and to related items:
- Section 2(49)(d) says "income" includes the value of any perquisite or profit in lieu of salary taxable under sections 17 and 18.
- Section 2(49)(e) includes any special allowance or benefit, other than a perquisite, specifically granted to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit.
- Section 2(90)(a)(ii) says that for deducting tax under section 392(1) to (6) on income under the head "Salaries", "rates in force" means the rates specified in the Finance Act of the relevant year.
- Section 17(1) lists perquisites, for example rent-free accommodation provided by the employer.
Real-life example 1: a landlord, a doctor and a clinic
Dr Meena rents a clinic space for Rs 65,000 a month and also rents a medical chair set for Rs 10,000 a month. Her gross receipts last year were Rs 48 lakh, so she is not a specified person. The clinic space is rent under section 402(29)(b) and is above Rs 50,000 a month, so Sl. No. 2(i) applies. The chair rental is not rent for Sl. No. 2(i) because only land, buildings and appurtenant land count, so that payment is outside the rent row. Had her receipts been Rs 52 lakh, she would be a specified person and the picture would change: 10% on the clinic space, and the chair hire would also count as rent under Sl. No. 2(ii)(b) (furniture), though whether it is tested against the Rs 50,000 threshold on its own or together with the clinic rent should be read from the Table by a professional.
Real-life example 2: a private company and its payroll
Ravi's friend Anil is a director of a private company that pays monthly salaries. The company is the "person responsible for paying" under section 402(27)(a)(ii), and the principal officer (say its manager or secretary) is included. The company is the one that deducts and deposits, acting through its principal officer. Anil, as an employee, does not deduct tax from his own pay; the company does it before payment.
What other terms in section 402 trip people up?
- Immovable property (402(19)): land other than agricultural land, a building, or part of a building. Agricultural land is defined separately in clause 2.
- Consideration for transfer of immovable property (402(9)): includes club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee and similar incidental charges, not just the price in the sale deed.
- Professional services (402(28)): legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration and advertising, and other professions the Board notifies.
- Commission or brokerage (402(7)): payments to someone acting for another for services (other than professional services), for services in buying or selling goods, or for transactions in assets other than securities.
- Contract (402(10)): includes a sub-contract.
- Work (402(47)): includes advertising, broadcasting, carriage of goods or passengers (other than by railways), catering, certain manufacture to a customer's specification, and, from 1 April 2026, supply of manpower to a person to work under his supervision, control or direction.
What are the common mistakes with these definitions?
- Treating equipment hire as rent for every payer. For Sl. No. 2(i), only land, buildings and appurtenant land are rent.
- Testing turnover for the wrong year. The test is the tax year immediately preceding the year of payment, not the current year.
- Assuming an individual is never a specified person. Limb (b) catches individuals and HUFs above Rs 1 crore (business) or Rs 50 lakh (profession).
- Assuming a small firm or company is not specified. Limb (a) has no turnover test.
- Looking for a definition of salary in section 402. It is not there. Use the head "Salaries", section 17 and section 392.
- Applying the Rs 1 crore and Rs 50 lakh limits to other terms. The "buyer" limit in section 402(6) is Rs 10 crore of turnover, and "designated person" and "seller" have their own text.
Where is this in the Act?
- Section 402(29): rent
- Section 402(37): specified person
- Section 402(27): person responsible for paying (salary at (a), Government payments at (f))
- Section 402(28), (7), (9), (10), (19), (47): professional services, commission or brokerage, consideration for transfer of immovable property, contract, immovable property, work
- Section 2(77): person; section 2(85): principal officer; section 2(49)(d) and (e): income includes perquisites and special allowances; section 2(90): rates in force
- Section 393(1), Table Sl. No. 2: rent TDS rows; section 392(1): TDS on salary; section 17: perquisite
How can a CA firm keep track of which clients are specified persons?
The status can change every year, because it rests on the previous year's receipts. A CA firm that handles TDS for many clients needs a note against each client of which side of the line they fall on. Finexo's practice management software keeps client records, tasks and deadlines in one place, so a yearly re-check can be set as a task. It does not decide the status for you.
This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.
Frequently Asked Questions
How does the Income Tax Act 2025 define rent for TDS?
Section 402(29) defines rent as any payment, by whatever name called, under a lease, sub-lease, tenancy or other arrangement for the use of land, a building, appurtenant land, machinery, plant, equipment, furniture or fittings, whether or not the payee owns them. For section 393(1) Sl. No. 2(i), only land and buildings count.
Who is a specified person under section 402(37)?
Any person other than an individual or HUF, and any individual or HUF whose business turnover exceeded Rs 1 crore, or whose professional gross receipts exceeded Rs 50 lakh, in the preceding tax year.
Is a company or firm always a specified person?
Yes. Limb (a) of section 402(37) covers any person that is not an individual or HUF, with no turnover test.
Does the Act define salary in section 402 or section 2?
No. Section 402(27)(a) identifies who pays tax on income under the head Salaries (the employer, or the company including its principal officer), and sections 17 and 392 deal with perquisites and TDS on salary.
Who deducts TDS on salary paid by the Government?
Under section 402(27)(f), the drawing and disbursing officer, or any other person responsible for crediting or paying the sum, deducts the tax.
Which year's turnover decides if I am a specified person?
The tax year immediately preceding the tax year in which the income or sum is credited or paid, as section 402(37)(b) states.