TDS on Rent w.e.f 01.4.2026 as per New Income Tax Rules 2026
Under the new Income-tax Act, 2025 (effective April 1, 2026), the provisions for deducting Tax Deducted at Source (TDS) on rent have been consolidated under Section 393(1). The rules depend on whether the payer is a “specified person” (like a company or a tax-audited business) or an individual/HUF. [ Refer Section 393 Income Tax Act 2025 Tax to be deducted at source.]
Here are the complete provisions:
1. Definition of Rent
“Rent” means any payment under any lease, sub-lease, tenancy, or agreement for the use of land, buildings (including factories), machinery, plant, equipment, furniture, or fittings, regardless of whether the payee owns them.
2. TDS by “Specified Persons” (Companies, Firms, Audited Individuals/HUFs)
If you fall under this category, your TDS obligations are governed by Section 393(1) [Table: Sl. No. 2(ii)]. [ Refer Section 393 Income Tax Act 2025 Tax to be deducted at source.]
- Threshold Limit: TDS must be deducted if the rent exceeds ₹50,000 for a month or part of a month.
- Applicable Rates:
- 2% for the use of any machinery, plant, or equipment.
- 10% for the use of any land, building, furniture, or fittings.
3. TDS by Individuals/HUFs (Not liable to Tax Audit)
If you are an individual or HUF paying rent for personal or non-audited business purposes, your obligations fall under Section 393(1) [Table: Sl. No. 2(i)].
- Scope: For this category, TDS is only required on rent paid for land or buildings; machinery and equipment are excluded.
- Threshold Limit: TDS is applicable if the rent paid to a resident exceeds ₹50,000 for a month or part of a month.
- Applicable Rate: 2%.
- When to Deduct: Unlike standard TDS which is deducted monthly, you only need to deduct this tax once a year—specifically at the time of crediting or paying rent for the last month of the tax year or the last month of the tenancy, whichever is earlier.
- Compliance (Form 141): You do not need to obtain a TAN. You must deposit the TDS using your PAN by filing Schedule A of Form No. 141 (which replaces the old Form 26QC). This must be filed electronically within 30 days from the end of the month in which the deduction is made.
- Multiple Landlords/Tenants: Form 141 now requires you to report the share percentages of all landlords and tenants. If you have multiple resident landlords with the same status (e.g., all are individuals), you only need to file a single Form 141 covering all of them.
4. What if the Landlord doesn’t provide a PAN?
If the landlord fails to furnish their valid Permanent Account Number (PAN), you are required to deduct tax at a higher rate of 20%. However, if you are an individual/HUF deductor falling under the special rule (Sl. No. 2(i)), the total TDS deducted at 20% cannot exceed the actual rent payable for the last month of the tax year or tenancy.
5. Exemptions (When TDS is NOT required)
- REITs: No TDS is required to be deducted on rent credited or paid to a business trust (like a Real Estate Investment Trust) for any real estate asset owned directly by the trust.
- Form 121 Declaration: A resident landlord whose estimated total income tax liability for the year will be nil can submit a self-declaration using the new unified Form No. 121 to the tenant, requesting that no TDS be deducted on the rent.
7. How to deduct tds on Commission with example
Under the Income-tax Act, 2025, the procedure and rates for deducting Tax Deducted at Source (TDS) on rent depend on the type of payer. The provisions are consolidated under Section 393(1).
Here is how to deduct TDS on rent, along with examples for both categories of payers:
1. TDS by “Specified Persons” (Companies, Firms, Audited Individuals/HUFs)
If the payer is a “specified person” (e.g., a company, a firm, or a business/profession subject to tax audit), the deduction is governed by Section 393(1) [Table: Sl. No. 2(ii)].
- Threshold: TDS must be deducted if the rent exceeds ₹50,000 for a month or part of a month.
- Rates:
- 2% for the use of any machinery, plant, or equipment.
- 10% for the use of land, building (including factory building), furniture, or fittings.
- Timing: Tax is deducted at the time of credit of rent to the payee’s account or at the time of payment, whichever is earlier.
Example 1: Company paying office rent M/s ABC Ltd. (a specified person) rents an office building from Mr. Sharma for ₹80,000 per month.
- Check Threshold: Since ₹80,000 exceeds the ₹50,000/month threshold, TDS is applicable.
- Calculation: Because it is a building, the applicable rate is 10%.
- Deduction: 10% of ₹80,000 = ₹8,000.
- Net Payment: ABC Ltd. will deduct ₹8,000 every month and pay Mr. Sharma a net rent of ₹72,000. ABC Ltd. will deposit the TDS using its TAN.
2. TDS by Individuals/HUFs (Not liable to Tax Audit)
If the payer is an individual or HUF who is not audited (e.g., a salaried employee renting a house), the deduction is governed by Section 393(1) [Table: Sl. No. 2(i)].
- Scope: This only applies to the payment of rent.
- Threshold: TDS is applicable if the rent exceeds ₹50,000 for a month or part of a month.
- Rate: 2%.
- Timing: Unlike companies that deduct monthly, these individuals only need to deduct the tax once a year—at the time of crediting or paying rent for the last month of the tax year or the last month of the tenancy, whichever is earlier.
- Compliance: The deductor does not need a TAN. They must report and deposit the tax using their PAN via Schedule A of the unified Form No. 141.
Example 2: Salaried individual paying residential rent Mr. Gupta, a salaried employee, rents a residential flat from Mrs. Verma for ₹60,000 per month for the entire tax year (12 months).
- Check Threshold: Since the rent is above ₹50,000/month, Mr. Gupta must deduct TDS.
- Calculation: Total annual rent = ₹60,000 x 12 = ₹7,20,000.
- The TDS rate is 2%. Total TDS for the year = 2% of ₹7,20,000 = ₹14,400.
- Deduction: Mr. Gupta does not deduct anything from April to February. In March (the last month of the tax year), instead of paying the full ₹60,000, he deducts the entire year’s TDS (₹14,400).
- Net Payment in March: ₹60,000 – ₹14,400 = ₹45,600.
- He will deposit the ₹14,400 using his PAN by filing Form 141 (Schedule A) within 30 days from the end of the month of deduction.
Important Rules to Remember
- No PAN Provided: If the landlord does not provide a valid Permanent Account Number (PAN), tax must be deducted at a higher rate of 20%. However, for individuals/HUFs deducting under the special rule (Sl. No. 2(i)), the TDS amount cannot exceed the actual rent payable for the last month of the tax year or tenancy.
- Form 121 Exemption: A resident landlord whose estimated total income tax liability for the year is nil can submit a self-declaration using Form No. 121 to request non-deduction of TDS.
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