Experts suggest that raising the TDS threshold on rental income could stimulate new housing development.

2025-02-03 02:10:22

In her budget speech, Finance Minister Nirmala Sitharaman announced an increase in the tax deducted at source (TDS) threshold for rental income from ₹2.40 lakh to ₹6 lakh per year. This move aims to reduce the number of transactions subject to TDS, benefiting small taxpayers receiving lower rental payments.

Under Section 194-I of the Income Tax Act, rent payments—whether for property or machinery—are subject to TDS at a rate of 10% for land and buildings, with lower rates for machinery and equipment. With the revised threshold, rental payments of up to ₹50,000 per month will now be exempt from TDS, providing significant relief to tenants. Experts believe this change will enable tenants to access better-quality rental properties in major Indian cities without additional tax deductions.

Additionally, the finance minister announced that taxpayers can now value two self-occupied properties at nil for tax computation, instead of just one.

Real estate industry experts have long advocated for raising the TDS threshold on rental income, arguing that the previous limit discouraged many investor-owners from renting out their properties.

“Exempting rent up to ₹6 lakh from TDS will significantly benefit tenants, who constitute 40% of the residential rental market. This will ease the financial burden on middle-class families and encourage more investor-owners to rent out their properties, boosting the overall supply and affordability of rental housing,” said Abhilash Pillai, partner at Cyril Amarchand Mangaldas.

Before the 2018-19 financial year, the TDS threshold for rental income was ₹1.8 lakh per year under Section 194-I.

“With the latest changes to TDS provisions on rental income, landlords and tenants must stay informed. These revisions aim to reduce tax burdens, enhance compliance, and curb tax evasion,” said Ketan Mukhija, senior partner at Burgeon Law.