TDS on Rent Increased: Budget 2025

The Budget 2025 has introduced significant changes to the Tax Deducted at Source (TDS) on rent, affecting both tenants and landlords. These revisions aim to enhance tax compliance and ensure better reporting of rental income. Understanding the updated TDS rates, applicable exemptions, and compliance requirements is crucial for individuals and businesses involved in property leasing.

TDS on Rent: Budget 2025 Updates

• The TDS threshold on rent has been increased to ₹6 lakh per annum.
• This change aims to reduce the number of transactions subject to TDS, benefiting small taxpayers receiving smaller rental payments.
• The increase in threshold simplifies compliance for tenants and landlords.

Tax Relief on Self-Occupied Properties

The government has also proposed a significant relief for homeowners by allowing two self-occupied properties (instead of just one) to be valued at ‘nil’ for tax purposes.

TDS Framework Simplification

FM Sitharaman outlined plans to simplify TDS rules by:

• Reducing the number of TDS rates and thresholds, making compliance easier.
• Increasing TDS deduction thresholds for better clarity and uniformity in tax administration.

Previous TDS on Rent Provisions

• Until FY 2024-25, the TDS threshold for rent under Section 194-I was ₹2.40 lakh per annum.
• Before FY 2018-19, the threshold limit was ₹1.80 lakh per annum.
• Education cess and secondary & higher education cess are not applicable to TDS on rent.

TDS on Rent for Individuals and HUFs

• Under Section 194IB, individuals and Hindu Undivided Families (HUFs) paying rent of ₹50,000 or more per month must deduct TDS.
• Individuals and HUFs subject to tax audit must comply with TDS deduction requirements.

Suggested Read: Union Budget 2025 Highlights

TDS on Rent Rate 2025

The applicable Tax Deducted at Source (TDS) rates on different types of rental payments are as follows:

Sr. No.	Nature of Payment	TDS Rate
1	Rent for plant, equipment, and machinery	2%
2	Rent for land, building, furniture, or fittings	10%

Suggested Read: TDS on Rent Limit Rules

Payments Covered Under Section 194-I (TDS on Rent)

Section 194-I of the Income Tax Act mandates TDS deduction on rent payments for various types of property and assets. The table below outlines the key payments covered under this section:

Nature of Payment	TDS Applicability
Rent from letting out a factory building	TDS is applicable even if the rental income is treated as business income by the lessor.
Service charges paid to business centers	Considered as rent and subject to TDS under Section 194-I.
Building and furniture let out by separate persons	TDS applies separately on rent paid for the building and for the furniture.
Rent not paid monthly	TDS is deducted at the time of actual payment or credit, whether monthly, quarterly, or annually.
Cold storage facility charges	Considered charges for using a plant, not a building; Section 194C applies instead of 194-I.
Hall rent paid by an association	TDS is applicable if rent exceeds ₹2,40,000 per annum.
Payments to hotels for seminars including meals	If charges include catering, Section 194C applies instead of 194-I.

Suggested Read: How to File Rental Income in ITR

Who Pays TDS on Rent?

• Any person (except an Individual or HUF) paying rent to a resident must deduct TDS.
• Individuals or HUFs under tax audit must deduct TDS on rent.
• TDS applies if the total rent paid exceeds ₹2,40,000 per financial year (earlier ₹1,80,000 until FY 2018-19).
• Individuals/HUFs not under tax audit paying rent above ₹50,000 per month must deduct TDS at 5% under Section 194-IB (effective from June 1, 2017).

Suggested Read: How to Save Rental Income Tax?

When is TDS Under Section 194-I Not Applicable?

• Rent Below ₹2,40,000 Per Year – No TDS is required if the total rent paid during a financial year does not exceed ₹2,40,000 (previously ₹1,80,000).
• Individual or HUF as Tenant (Non-Tax Audit Cases) – TDS is not applicable if the rent is paid by an individual or HUF who is not subject to a tax audit.
• Film Exhibition Revenue Sharing – No TDS applies to payments between a film distributor and a cinema exhibitor, as this is considered a service arrangement rather than rent.

Suggested Read: Rental Agreement Essentials

TDS on Advance Rent

• TDS on Rent Spanning Multiple Financial Years – If advance rent covers multiple years, TDS is deducted proportionally based on Form 16 issued for the total amount.
• Change in Ownership of Rented Asset – If the property is sold or transferred, TDS credit is available only after the ownership transfer is recorded.
• Cancellation of Rental Agreement – If a rental agreement is canceled after advance rent payment and TDS deduction, the balance is refunded, and the landlord must report this in the ITR.
• TDS Certificate for Non-Salary Payments – A TDS certificate (Form 16A) must be issued quarterly.

Suggested Read: Renting vs. Buying a Property

Deadline for Depositing TDS

• Government Payments – TDS must be deposited on the same day, without requiring a challan.
• Non-Government Payments – TDS must be deposited by the 7th of the following month using an income tax challan.
• March Transactions – If TDS is deducted in March, it must be deposited by April 30.

Suggested Read: Impact of Location on Rental Income

Penalties for Non-Compliance

Failure to Deposit Deducted TDS – If TDS is deducted but not deposited, interest at 1.5% per month is charged from the deduction date until deposit.

Failure to Deduct TDS – Interest at 1% per month applies from the due date until the tax is deducted.

Suggested Read: Impact of Property Selection on Rental Income

TDS on Rent for NRIs

• Flat TDS Rate – Rent paid to an NRI landlord is subject to 30% TDS plus surcharge and 4% cess.
• No Minimum Threshold – TDS must be deducted regardless of the rent amount, as there is no exemption limit for NRI rental payments.
• Lower or No TDS Certificate – If the NRI’s total income in India is below the basic exemption limit, they can apply for a lower or nil TDS deduction certificate from the Income Tax Department.

Conclusion

The increase in the TDS threshold on rent from ₹2.40 lakh to ₹6 lakh under Budget 2025 aims to ease compliance and reduce the tax burden for small taxpayers. Additionally, streamlining TDS rates and thresholds ensures better clarity in tax deductions. These changes are expected to simplify tax administration while maintaining transparency in rental income reporting.

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