In a move set to benefit landlords and tenants alike, Finance Minister Nirmala Sitharaman announced in the Union Budget 2025-26 that the threshold for Tax Deducted at Source (TDS) on rental income has been increased from ₹2.4 lakh to ₹6 lakh per year. This means rental payments up to ₹50,000 per month will now be exempt from TDS, significantly reducing tax burdens on property owners and easing financial pressure on tenants.
Impact on Landlords and Tenants
Under Section 194-I of the Income Tax Act, TDS is applicable on rental income from land, buildings, and machinery. Previously, landlords earning more than ₹2.4 lakh annually from rent had to deduct TDS at 10% on the amount exceeding this limit. The new threshold of ₹6 lakh will reduce tax deductions for many small landlords, particularly those owning second homes or investment properties.
For tenants, this change translates to fewer tax deductions on rental payments, making quality housing more accessible, especially in metro cities where ₹50,000 per month can secure premium rental accommodations. Experts believe this will ease the financial burden on middle-class families, who often struggle with high rents and additional deductions.
Encouraging More Rental Supply
Industry leaders have long advocated for an increase in the TDS threshold, arguing that the previous limits discouraged many investors from leasing out their properties due to tax concerns. With fewer compliance requirements, more homeowners may now choose to rent their properties, leading to increased housing supply and potentially stabilizing rental prices.
Abhilash Pillai, Partner at Cyril Amarchand Mangaldas, stated,
"Exempting rent up to ₹6 lakh from TDS will greatly benefit tenants, who account for 40% of residential rentals. This will ease the financial burden on middle-class families and encourage more investor-owners to rent out properties, boosting the residential real estate sector."
Additional Tax Relief for Homeowners
Alongside this revision, the finance minister also announced that taxpayers can now declare two self-occupied properties as "nil value" for tax computation, instead of just one. This move will benefit homeowners with multiple properties and further incentivize property investments.
What This Means for the Real Estate Market
With reduced tax obligations, fewer compliance hassles, and increased rental housing supply, the real estate sector is expected to witness higher rental participation and improved affordability. This measure, coupled with other housing reforms, is set to positively impact the rental market and encourage long-term real estate investments.
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