TDS on Rent of Residential Property under the Income-tax Act, 2025: A Complete Guide for Tenants and Landlords

Knowledge Series | Direct Tax

1. Executive Summary

Rent payments for residential properties are one of the most common types of payment in the Indian economy and at the same time one of the most poorly handled when it comes to withholding tax. This is due to structural reasons, not technical ones. The deduction of tax at source is generally regarded as a duty carried out by a company's finance department. In the case of residential rent, on the other hand, it is usually a salaried person who pays another individual, with no accounting system, no tax advisor, and no institutional memory linking the two. The tax obligation still stands and is enforced.

The Income-tax Act, 2025, came into force on 1 April 2026 and has made major changes to this section. The twenty-something individual withholding provisions in the Income-tax Act, 1961, have now been brought together and set out in a few tabulated sections. Rent is now listed at Serial Number 2 in the table attached to Section 393(1), the section covering payments to residents. The difference that used to divide Section 194-I from Section 194-IB is now expressed in a single defined term, "specified person", as stated in Section 402(37). As a result, the first question a tenant has to answer is no longer "which section applies to me" but "am I a specified person".

The renumbering has been accompanied by a real simplification of the thresholds. In the new rent entry, both branches use the same criterion — that the rent is more than fifty thousand rupees for a month or for part of a month. The annual total threshold which previously applied to business payers under the old Section 194-I is now abolished. In terms of procedure, four separate challan-cum-statements have been combined into one Form 141, and the relevant certificates have been merged into a single Form 132.

The risk in this situation is asymmetric: if a tenant deducts the correct amount and is then repaid by the landlord, there is no loss suffered. However, if a tenant fails to make the deduction, he or she faces the imposition of interest under Section 398(3), a late-filing fee under Section 427, penalties under Section 448, and — in the case where the rent is treated as a business expense — disallowance under Section 35 (30% in the case of a resident payee and, subject to the statutory conditions, possibly the entire chargeable amount in the case of a non-resident). On the other hand, the landlord may include the rental income in the Annual Information Statement without having a corresponding tax credit, thus creating a discrepancy that has to be resolved before the return of income is filed.

The article outlines the current framework, shows the places where the 2025 Act differs from the situation under the 1961 Act, and answers the practical questions most often encountered in residential tenancies—namely those concerning security deposits and maintenance charges, joint ownership, changes of tenancy during the year, non-resident landlords, and the way the arrangement interacts with the reverse charge mechanism provided for in the goods and services tax legislation.

2. The Legal and Regulatory Background

2.1 From Twenty Sections to One Table

Under the Income-tax Act, 1961, withholding on rent was governed by two provisions that were structurally similar but administratively very different. Section 194-I applied to payers other than individuals and Hindu undivided families below the tax audit thresholds. It required deduction at the time of credit or payment, quarterly statements in Form 26Q, a Tax Deduction and Collection Account Number, and certificates in Form 16A. Section 194-IB, inserted with effect from 1 June 2017, applied to the residual category of individual and HUF payers. It required a single annual deduction, dispensed with the TAN requirement, and used a PAN-based challan-cum-statement in Form 26QC with certificates in Form 16C.

The Income-tax Act, 2025 has retained both mechanisms but has relocated them. Chapter XIX now contains a small set of sections, each carrying one or more tables. Section 392 deals with salary. Section 393 covers everything else and is divided into a table for payments to residents at sub-section (1), a table for payments to non-residents at sub-section (2), and a table for payments to any person—winnings, cash withdrawals, partner payments—at sub-section (3). Rent appears at Serial Number 2 of the first table.

The consolidation goes beyond a superficial change; since the payer categories are now defined expressions rather than descriptions contained in each section, a change in a taxpayer's turnover in one year may cause the applicable branch of the rent entry to change in the following year, having an impact on the rate, the timing of the deduction, the requirement for a TAN, and the form of the statement. This is looked at in Part 3.

2.2 The Commencement Position

The Income-tax Act, 2025 came into effect on 1 April 2026 and is applicable to Tax Year 2026-27, Deductions up to 31 March 2026 remain subject to the Income-tax Act, 1961 and the Income-tax Rules, 1962, including when preparing statements, issuing certificates, and dealing with any interest or penalties concerning that period. A tenancy that spans both regimes will therefore entitle the tenant to a deduction under the previous Section 194-IB for the part of the tenancy in Financial Year 2025-26 and under Section 393(1) [Table: Sl. No. 2(i)] for the part in Tax Year 2026-27.

2.3 Sources of Authority

The article makes use of the following tools. Those who are handling a particular transaction should refer to each of the documents as they have been amended up to the relevant date.

• Income-tax Act, 2025 — as amended by the Finance Act, 2026 —
  • Section 35 (business-expenditure disallowance for TDS defaults),
  • Section 393 (deduction of tax at source),
  • Section 395 (certificates for lower or nil deduction and certificates to deductees),
  • Section 396 (tax deducted is income received),
  • Section 397 (compliance and reporting, including TAN, PAN consequences and non-resident payment reporting),
  • Section 398 (consequences of failure to deduct or pay),
  • Section 401 (bar against direct demand on the assessee),
  • Section 402 (definitions for the withholding chapter),
  • Section 427 (fee for default in furnishing statements) and
  • Section 448 (penalty for failure to deduct tax at source).
• Income-tax Rules, 2026 —
  • Rule 211 (declaration for no deduction),
  • Rule 213 (application by the payee for a lower or nil deduction certificate),
  • Rule 214 (application by a payer for determination of the appropriate proportion of a sum chargeable in specified non-resident cases, in Form 129),
  • Rule 215 (certificates of deduction),
  • Rule 218 (time and mode of payment to the Government account),
  • Rule 219 (statements of deduction) and
  • Rule 220 (information for payments to non-residents, including Forms 145 and 146 where applicable).
• Goods and services tax legislation —
  • Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017, as amended by Notification No. 04/2022-Central Tax (Rate) dated 13 July 2022 and
  • Notification No. 15/2022-Central Tax (Rate) dated 30 December 2022, and
  • Notification No. 13/2017-Central Tax (Rate) dated 28 June 2017 as amended by Notification No. 05/2022-Central Tax (Rate) dated 13 July 2022, which together govern the treatment of residential renting.
• Judicial guidance — decisions rendered on the corresponding provisions of the Income-tax Act, 1961 continue to inform the interpretation of expressions such as "rent" and the treatment of composite payments, since the substantive language has been carried forward with limited change.

3. Key Provisions and Professional Analysis

3.1 The Threshold Question: Is the Tenant a "Specified Person"?

The two items listed in Serial Number 2 of the Table in Section 393(1) differ only in regard to the name of the payer; in all other respects—such as rate, timing, and procedure—the situation is determined by that classification. That classification is based on the definition given in Section 402(37).

A specified person is (a) any person other than an individual or a Hindu undivided family; or (b) an individual or HUF whose total sales, gross receipts or turnover from business exceeded one crore rupees, or from a profession exceeded fifty lakh rupees, during the tax year immediately preceding the tax year in which the sum is credited or paid.

Two features of this definition deserve emphasis. First, the test is applied to the immediately preceding tax year, not the current one. A professional whose receipts crossed fifty lakh rupees in Tax Year 2025-26 becomes a specified person for Tax Year 2026-27 even if receipts fall in the current year. Second, companies, firms, limited liability partnerships, trusts, associations of persons and bodies of individuals are specified persons automatically, irrespective of turnover — including a newly incorporated company in its first year with no revenue at all.

3.2 Serial Number 2(i) — Tenants Who Are Not Specified Persons

This section takes the place of Section 194-IB and covers any rent income paid by a person who is not a specified person to a resident. The rate is 2% and the threshold is fifty thousand rupees per month or for part of a month.

3.2.1 The Threshold Is Monthly, Not Yearly

The threshold relates to the rent for a month or a part of a month, not to the total amount for the whole year; thus, rent of forty-eight thousand rupees per month—amounting to five lakh seventy-six thousand rupees annually—entitles no deduction, whereas rent of fifty-one thousand rupees per month does entitle a deduction covering the entire amount of rent paid during the year and not only the amount exceeding fifty thousand rupees.

The words "or part of a month" matter where a tenancy begins or ends mid-month. A tenancy commencing on 20 June at a contractual monthly rent of sixty thousand rupees may involve a pro-rated payment of only about forty thousand rupees for June. The statutory table does not provide a separate computational rule stating whether the threshold for that part-month is to be tested by reference to the full monthly rent reserved under the tenancy or only the amount actually credited or paid for the part-month. Until administrative or judicial clarification emerges, treat the point as interpretative rather than settled. Where the contractual monthly rent exceeds the threshold, a conservative compliance position is to deduct and to document the basis adopted.

3.2.2 Timing — One Deduction, at the End

Note 1 to Serial Number 2 states that in the case of entry 2(i), tax is to be deducted at the time of credit of rent to the account of the payee, or at the time of payment, whichever is earlier, for the last month of the tax year or the last month of the tenancy. This is the single most distinctive feature of the entry, and the one most frequently overlooked.

The mechanism is therefore annual. Tax is not withheld from each month's rent. Instead, the tenant pays the full contractual rent for eleven months and, in the twelfth month—or in the final month of the tenancy if the tenant vacates earlier—deducts tax computed at 2% on the cumulative rent for the whole period and remits the balance to the landlord.

3.2.3 No TAN, and a Single Form

A tenant deducting under Serial Number 2(i) is not required to obtain a Tax Deduction and Collection Account Number. Compliance is discharged on a PAN basis. Rule 218(3) provides that the sum deducted is to be paid to the credit of the Central Government within thirty days from the end of the month in which the deduction is made, accompanied by a challan-cum-statement in Form 141. Rule 219(5) makes the same provision for the statement. Form 141 is the consolidated successor to Forms 26QB, 26QC, 26QD and 26QE, and carries separate schedules for immovable property transfers, rent, contractual and professional payments, and virtual digital assets.

The certificate to be issued to the landlord is Form 132, prescribed under Rule 215, which replaces the erstwhile Forms 16B, 16C, 16D and 16E. It is to be furnished within fifteen days from the due date for furnishing Form 141.

A deduction made in March, being the last month of the tax year, must therefore be deposited with Form 141 by 30 April. A deduction made in September because the tenant vacates that month must be deposited by 30 October.

3.3 Serial Number 2(ii) — Tenants Who Are Specified Persons

This entry is the successor to Section 194-I. It applies to any income by way of rent paid by a specified person to a resident. The rate is 2% for the use of machinery, plant, or equipment, and 10% for the use of any land or building, including a factory building, or land appurtenant to a building, or furniture, or fittings. The threshold for both limbs is fifty thousand rupees for a month or part of a month.

For a residential property let to a corporate tenant, the applicable rate is 10%, since the subject matter is land and building. Where the letting is of a furnished flat under a single composite rent, the whole of the rent attracts 10%, the furniture being expressly within the same limb. Where machinery, plant or equipment is let under a separate and genuinely severable arrangement, the 2% rate applies to that component.

3.3.1 Timing and Procedure

Unlike entry 2(i), this entry follows the general rule in Section 393(1)(c): deduction is made at the time of credit of the income to the account of the payee, or at the time of payment, whichever is earlier. In a monthly tenancy, this means a monthly deduction. Section 393(11) reinforces the position by deeming a credit to a suspense account, or to any account by whatever name called, to be a credit to the account of the payee.

A specified person requires a TAN under Section 397(1), deposits tax within the timelines in Rule 218, furnishes quarterly statements in Form 140 under Rule 219, and issues certificates in Form 131 under Rule 215 within fifteen days from the due date for the quarterly statement.

3.4 What Is "Rent", and What Forms the Basis of Deduction

The expression "rent" has a wide meaning, covering payment under a lease, sub-lease, tenancy, or any other agreement or arrangement for the use of land, building, machinery, plant, equipment, furniture, or fittings, whether or not any or all of these are owned by the payee. The breadth of the definition brings a range of composite arrangements within the net. It is also what makes identifying the deduction base the most frequently litigated aspect of the provision.

3.4.1 Security Deposits

A refundable security or interest-free deposit taken to secure performance of the tenant's obligations is not rent. It is a deposit repayable at the end of the tenancy and does not represent income in the landlord's hands. No deduction arises on payment of such a deposit. The position changes where the deposit is non-refundable, or where the arrangement provides for adjustment of the deposit against rent. To the extent a deposit is adjusted against rent, the adjustment is a payment of rent and enters the base for deduction in the period of adjustment. A deposit that is forfeited on breach may also require separate consideration, though it will not ordinarily bear the character of rent.

3.4.2 Maintenance and Society Charges

Where the tenancy provides for a single inclusive rent covering maintenance, the entire sum is the base for deduction. Where maintenance is separately identified in the agreement and is separately billed, and where the payment is genuinely made to the housing society or maintenance agency rather than to the landlord, the maintenance component ordinarily falls outside the base. The distinction is one of substance rather than of labelling. An agreement that separates the components but routes the whole payment through the landlord's account, with the landlord discharging the society dues, is likely to be treated as a composite rent.

3.4.3 Municipal Taxes, Electricity and Water

Municipal taxes and property taxes borne by the landlord are the landlord's statutory liability. Where the tenant pays them directly to the municipal authority under the terms of the tenancy, the payment discharges the landlord's obligation. It constitutes additional consideration for the use of the premises. A conservative approach treats such payments as part of the base. Utility charges billed directly to the tenant by the supplier on a metered basis are not rent, since they are consideration for the supply of electricity or water rather than for the use of the premises.

3.4.4 Goods and Services Tax Component

Where goods and services tax is charged on the rent and is separately indicated in the invoice or in the tenancy agreement, the settled administrative position under the 1961 Act was that deduction is made on the rent exclusive of the tax component, on the reasoning that the tax collected does not constitute income of the landlord. Where the tax is not separately indicated, deduction is made on the gross sum. There is no indication that the position has changed under the 2025 Act, and the underlying reasoning — that a statutory levy collected on behalf of the Government is not income of the collector — is unaffected by the renumbering. Practitioners should nonetheless keep in view that this position rests on administrative guidance rather than on express statutory language.

3.5 Non-Resident Landlords: A Different Regime Entirely

Both limbs of Serial Number 2 are confined by the opening words of Section 393(1) to sums credited or paid to a resident. Where the landlord is a non-resident, neither limb applies. Deduction instead falls under Section 393(2), the table for payments to non-residents, and, in the case of rent, under Serial Number 17, which covers any sum chargeable under the provisions of the Act other than income chargeable under the head "Salaries", payable to a non-resident. The rate is at the rates in force.

Three consequences follow, each materially adverse to a tenant unaware of the landlord's residential status.

1. There is no threshold. The fifty thousand rupee monthly trigger belongs to Serial Number 2 of the first table. Serial Number 17 of the second table carries no threshold at all. Rent of fifteen thousand rupees a month paid to a non-resident landlord attracts deduction from the first rupee.
2. No relief is available from the TAN requirement. The PAN-based Form 141 route is available only for the entries listed in Rule 218(3), which include Serial Number 2(i) of the first table but not Serial Number 17 of the second. A tenant paying rent to a non-resident landlord must obtain a TAN, deposit tax under the general timelines, and furnish quarterly statements in Form 144 with certificates in Form 131. Separately, where the payment or remittance falls within Section 397(3)(d) read with Rule 220, information in Form 145 may also be required and, where the applicable part of Form 145 calls for an accountant's certificate, Form 146 is used. This remittance reporting is distinct from the quarterly TDS statement in Form 144.
3. The rate is materially higher. Deduction at the rates in force on rental income payable to a non-resident individual is ordinarily far in excess of the tax that will finally be payable, because it is applied to gross rent without regard to the thirty per cent standard deduction available in computing income from house property or to the landlord's slab position. Excess deduction is recoverable only through a refund claimed in the return of income.

Section 398(2) offers a measure of relief. A person who fails to deduct is not deemed to be an assessee in default if the payee has furnished a return of income, has taken the sum into account in computing income, has paid the tax due, and a certificate to that effect is furnished in the prescribed form. The relief is not automatic; it requires the landlord's cooperation and documentary support. Interest under Section 398(3)(c) remains payable from the date on which the tax was deductible to the date of furnishing of the return by the payee, even where the relief is available.

A non-resident landlord who expects deduction to exceed the eventual liability should consider a certificate under Section 395(1) for deduction at a lower rate or no deduction, using Form 128 prescribed under Rule 213. Separately, where the tenant or other payer considers that only a portion of the sum payable to the non-resident is chargeable to tax, Section 395(2) provides a payer-side route for determination of the appropriate proportion; Rule 214 prescribes Form 129 for that application. The Finance Act, 2026 also inserted Section 395(6), with effect from 1 April 2026, permitting an application to a prescribed income-tax authority subject to prescribed conditions and electronic verification; taxpayers should verify the operational route applicable to the relevant category at the time of application. In practice, initiate the application before the relevant payment cycle begins or early in the tax year.

3.6 Permanent Account Number and the Higher Rate

Section 397(1) requires every person entitled to receive any amount on which tax is deductible to furnish a valid Permanent Account Number to the deductor. Section 397(2) prescribes the consequence of failure. Tax is to be deducted at the higher of the rate specified in the relevant provision, the rate or rates in force, or twenty per cent — the alternative figure of five per cent applying only to the entries at Serial Numbers 8(ii) and 8(v) of the first table, which concern purchase of goods and e-commerce transactions.

For a residential tenancy, the practical effect is that a landlord who does not furnish a valid PAN raises the applicable rate from 2% to 20% for a non-specified tenant, and from 10% to 20% for a specified tenant. However, the two cases are not identical. For Serial Number 2(i), Section 397(2)(e) expressly caps the higher-rate deduction at the amount of rent payable for the last month of the tax year or the last month of the tenancy, as the case may be. Thus, on annual rent of twelve lakh rupees (one lakh rupees a month), the 20% computation would be two lakh forty thousand rupees, but the actual deduction under Serial Number 2(i) cannot exceed one lakh rupees. The special cap does not apply to Serial Number 2(ii).

Verification is important. Validate the PAN furnished by the landlord on the income-tax portal, and check the name returned by the validation against the name of the person in whose favour the tenancy agreement is executed and to whose account the rent is remitted. Where the PAN is inoperative on account of non-linkage with Aadhaar, the consequences applicable to an inoperative PAN — including higher deduction where applicable — should be examined together with the PAN–Aadhaar provisions and any CBDT relaxation in force for the relevant payment or credit. The tenant should therefore validate the PAN status before deduction rather than merely obtain a copy of the PAN card.

3.7 Joint Ownership and Multiple Payers

In the case of a property that is owned jointly, the rent must be paid to each co-owner in accordance with the proportion of their respective shares, and the threshold is applied to each co-owner individually. For example, a flat owned equally by two people and rented for ninety thousand rupees per month brings in forty-five thousand rupees per month for each co-owner. In this situation neither share exceeds fifty thousand rupees and therefore no deduction results from the entry. This applies only if the co-ownership is real, the shares are definite and can be ascertained, and the rent is paid separately to each co-owner in proportion to their share. If, however, one of the co-owners pays the entire rent and then divides it among the others, the arrangement is probably not likely to survive examination.

The converse case is a shared tenancy. Where two or more individuals occupy a flat jointly, and each pays a share of the rent to the landlord, the threshold applies to the rent paid by each payer. Three flatmates each paying thirty thousand rupees a month against a total rent of ninety thousand rupees are each below the threshold. Where, however, one of them pays the whole of the rent to the landlord and recovers shares from the others, that person is the payer of ninety thousand rupees a month, and the obligation attaches to that person alone.

3.8 Consequences of Default

The consequences of failing to deduct, or of deducting and failing to deposit, are set out principally in Sections 35, 398, 427 and 448, supplemented by the other penalty provisions of the Act.

Two observations follow. First, interest under Section 398(3) is not discretionary and is not waived on grounds of ignorance. It runs from the date the tax was deductible, which, in the case of an annual deduction under Serial Number 2(i), is the last month of the tax year. So a tenant who realises the omission two years later faces interest for the entire intervening period. Second, the late-filing fee under Section 427 accrues at two hundred rupees a day and is capped only at the tax itself. On a small deduction, the cap is reached quickly; on a large one, the fee can become substantial before the omission is noticed.

Section 401 bars direct demand on the assessee where tax has been deducted at source. The provision protects the landlord from being asked to pay tax the tenant deducted but did not deposit. Still, it does not help the landlord claim credit, which depends on the tax being reflected in the departmental records.

3.9 The Goods and Services Tax Interface

Withholding on rent and the goods and services tax on rent are separate obligations arising under separate statutes, and the presence of one says nothing about the other. Confusion between them is common in residential tenancies, where the two regimes point in different directions.

Entry 12 of Notification No. 12/2017-Central Tax (Rate) dated 28 June 2017 exempted services by way of renting of a residential dwelling for use as a residence. Notification No. 04/2022-Central Tax (Rate) dated 13 July 2022 narrowed the exemption by excluding cases where a registered person rents the residential dwelling. Notification No. 05/2022-Central Tax (Rate) of the same date inserted Entry 5AA into the reverse charge notification, placing the liability on the recipient where any person rents a residential dwelling to a registered person. The change took effect from 18 July 2022.

Where the reverse charge applies, the recipient discharges the tax and, subject to the ordinary conditions, may be eligible for an input tax credit. Deduction of tax at source under the Income-tax Act, 2025 is computed on the rent exclusive of that tax where the tax is separately indicated, as discussed at paragraph 3.4.4.

3.10 The Landlord's Position

For the landlord, rent from a residential property is chargeable under the head "Income from house property". The annual value is computed after deducting municipal taxes actually paid by the owner, and a standard deduction of thirty per cent of the annual value is allowed, together with a deduction for interest on capital borrowed for acquisition, construction, repair, renewal or reconstruction of the property. The standard deduction is a fixed statutory allowance and is available irrespective of the expenditure actually incurred; no separate deduction is available for maintenance, insurance, brokerage or property management charges.

Tax deducted by the tenant is, by virtue of Section 396, treated as income received by the landlord. The gross rent is therefore offered to tax and credit is claimed for the tax deducted. Three practical points arise.

1. Credit follows the departmental record, not the certificate. A landlord who holds Form 132 or Form 131 but whose Annual Information Statement does not reflect the deduction cannot obtain credit until the discrepancy is resolved. Resolution requires the tenant to correct the statement. The landlord should therefore reconcile the certificate against the Annual Information Statement before filing the return of income, not afterwards.
2. Advance tax obligations survive non-deduction. A landlord whose tenant does not deduct — because the tenant is unaware of the obligation or because the rent falls below the threshold — remains liable to pay advance tax on the rental income where the residual liability crosses the prescribed limit. The tenant's omission does not excuse interest on the shortfall in advance tax.
3. Rent is visible to the department irrespective of deduction. Rental receipts credited to a bank account, claims for house rent allowance made by tenants, and statements filed by specified-person tenants all feed the information systems. A landlord who assumes that the absence of deduction implies the absence of reporting is mistaken.

3.11 Worked Illustrations

The examples that follow show how the framework can be applied to situations which occur in practice. The figures are only indicative and are provided merely to illustrate the mechanics.

Illustration A — Salaried Tenant, Resident Landlord, Full Year

A person who is paid a salary lives in a flat in Gurgaon and pays a rent of eighty-five thousand rupees per month for the entire Tax Year 2026-27. The landlord is a resident and has provided a valid PAN.

The tenant is not a specified person. The monthly rent exceeds fifty thousand rupees, so Serial Number 2(i) applies. Cumulative rent for the year is ten lakh twenty thousand rupees, and tax at 2% is twenty thousand four hundred rupees. The tenant pays eighty-five thousand rupees for each month from April 2026 to February 2027, deducts the full twenty thousand four hundred rupees from the March 2027 payment, and remits sixty-four thousand six hundred rupees to the landlord. Form 141 is furnished, with the tax, by 30 April 2027. The tenant issues Form 132 to the landlord within fifteen days thereafter. No TAN is required.

Illustration B — Tenancy Terminated Mid-Year

The same tenant vacates on 31 October 2026. Rent has been paid for April to October, aggregating five lakh ninety-five thousand rupees. Tax at 2% is eleven thousand nine hundred rupees, deducted from the October payment because October is the last month of the tenancy. Form 141 is due by 30 November 2026. The tenant does not wait until March 2027; deferring the deduction to the end of the tax year would attract interest under Section 398(3) from the date on which the tax became deductible.

Illustration C — Rent Below the Threshold

A tenant pays forty-nine thousand rupees a month to a resident landlord. The monthly rent does not exceed fifty thousand rupees, so no deduction arises merely because the annual rent of five lakh eighty-eight thousand rupees is substantial. If the rent is revised to fifty-two thousand rupees a month from 1 October 2026, the threshold is crossed from that point. The consolidated provision does not expressly state whether, once the threshold is crossed mid-year, the deduction base under Serial Number 2(i) is confined to the above-threshold period or extends to the cumulative rent for the tax year. A conservative position is to deduct on the cumulative rent, but this should be identified as an interpretative approach pending specific clarification.

Illustration D — Corporate Lessee

A private limited company takes a flat in New Delhi on lease at seventy thousand rupees a month to house a senior employee. The company is a specified person. Serial Number 2(ii) applies, and the rate is 10%, the subject matter being land and building. The company deducts seven thousand rupees from each monthly payment, deposits the tax under Rule 218, furnishes Form 140 quarterly and issues Form 131 to the landlord. Annual deduction is eighty-four thousand rupees, against sixteen thousand eight hundred rupees had the employee taken the lease personally and been covered by Serial Number 2(i) — an illustration of how the choice of contracting party, made for commercial reasons, determines the withholding outcome.

Illustration E — Landlord's PAN Not Furnished

The tenant in Illustration A cannot obtain the landlord's PAN. Section 397(2) applies, and the higher rate becomes 20%. Twenty per cent of the cumulative rent of ten lakh twenty thousand rupees is two lakh four thousand rupees. However, because the tenant is covered by Serial Number 2(i), Section 397(2)(e) caps the deduction at the rent payable for the last month of the tax year or tenancy. The March rent is eighty-five thousand rupees, so the actual TDS is capped at eighty-five thousand rupees; the entire March payment is withheld and deposited as tax. The commercial answer remains to obtain and validate the landlord's PAN before the tenancy is executed, because even with the cap, the final-month cash flow can be eliminated.

Illustration F — Non-Resident Landlord

A tenant pays the landlord, who has moved overseas and is therefore a non-resident for the year, an amount of ₹35,000 per month. Serial Number 2(i) does not apply because it only relates to payments made to a resident. Instead, Section 393(2) [Table: Sl. No. 17] comes into play; there is no minimum amount and the tax is deducted at the rates in effect.

The tenant can pay the net rent, after having deducted the relevant tax at source, directly into the landlord's NRO account in India. Within the FEMA framework, rental income is considered a permissible credit against an NRO account. Simply crediting the payment to an NRO account in India has no effect on the landlord's non-resident status or on the obligation to withhold tax under Section 393(2).

Normally, the tenant should get a TAN, deduct the tax at the relevant time, deposit the tax through the method prescribed and provide Form 144. If the payment is subject to reporting under Section 397(3)(d) in conjunction with Rule 220, attention should also be paid to the requirements concerning Form 145 and, where applicable, the accountant's certificate in Form 146.

The landlord has the option of applying for a reduced or zero deduction certificate under Section 395(1) in Form 128. Alternatively, if the tenant believes that only part of the payment is subject to tax, the tenant may apply, together with Rule 214, under Section 395(2), in Form 129 to work out the correct proportion that is chargeable.

4. Business Implications

The effects of reorganising the withholding provisions go well beyond simply renumbering them, and can be divided into four categories: effects on organisations which pay residential rent, effects on individuals, effects on landlords, and effects on the systems and records which support compliance.

4.1 For Organisations That Lease Residential Premises

Companies, firms and all other named persons who have residential leases—whether those are for expatriate staff, for senior management, for guest houses or as part of a relocation policy—should use the move to Tax Year 2026–27 as a chance to look again at three issues.

1. The withholding section codes built into the accounts payable systems correspond to the provisions of the Income-tax Act, 1961. Rent is no longer referred to as '194-I'; it is now designated as Section 393(1) [Table: Sl. No. 2(ii)]. The statement formats, certificate templates, and the vendor master fields have to show the new references, and the mapping has to be applied in a consistent manner to ensure that the quarterly statements match.
2. The change in the threshold is such that systems set to take into account an annual total of two lakh forty thousand rupees will give the incorrect result. The trigger level is now fifty thousand rupees for a month or part of a month. Residential leases which earlier escaped the deduction since their annual rent had been low might now be included. On the other hand, in the case of arrangements which exceeded the annual total through a number of smaller properties, each property will be checked against the monthly amount.
3. The form of the lease: as stated in paragraph 3.1, it is the position of either the organisation or the employee as named lessee that determines the relevant entry, the rate, and the whole compliance framework. In the case where the organisation is the lessee, the effective rate for a residential lease is 10%, a significant cash flow factor for the landlord and one that is frequently the subject of negotiation. When organisations are examining their relocation and housing policies they should take into account the implications of withholding together with the consequences relating to the valuation of the perquisite.

4.2 For Individuals

The responsibility of individual tenants is, in fact, very slight: they only have to make one deduction, complete one form, obtain one certificate once a year and do not need a TAN. The problem is that it affects those people who are least likely to be aware of it, since no accounting system reminds them to make the deduction and rent is generally paid by standing instruction.

The threshold of fifty thousand rupees a month is no longer unusual. In the principal metropolitan rental markets, a two- or three-bedroom apartment in a well-located development will commonly exceed it. The population of individuals within the charge is therefore considerably larger than it was when the provision was introduced in 2017, and it grows with every rent revision.

A tenant who claims house rent allowance is in a particular position. The claim itself places the rent on record with the employer and, through the salary statement, with the department. Where the rent claimed exceeds fifty thousand rupees a month and no corresponding deduction appears, the inconsistency is visible. Tenants making such claims should treat the withholding obligation as a companion to the claim rather than as an unrelated matter.

4.3 For Landlords

The landlord's exposure is not to penalty but to cash flow, to credit, and to reconciliation.

The Section 395 route deserves particular attention for landlords whose gross rent is high but whose taxable income is modest — for instance, where the property is financed and interest on borrowed capital substantially reduces the income under the head "Income from house property", or where the landlord is a senior citizen with limited other income. The 10% deduction on gross rent, or the rates in force in a non-resident case, bears no relationship to that position, and the difference is recovered only through a refund claimed a year or more later.

4.4 For Systems, Records and Advisers

Three structural points emerge from the transition.

First, the "specified person" test is dynamic. An individual or HUF crossing the turnover thresholds in one year moves into a different withholding regime in the next — different rate, different timing, a TAN requirement, and a different statement. Apply the test at the start of each tax year, not once at the start of the tenancy. A tenancy that begins under Serial Number 2(i) may continue under Serial Number 2(ii) without any change in the tenancy itself.

Second, consolidating forms simplifies filing but concentrates risk. Form 141 now carries four schedules covering distinct transaction types. Selecting the wrong schedule, or reporting the rent transaction under the schedule intended for immovable property transfers, produces a statement that will not reconcile with the landlord's Annual Information Statement even though the tax has been paid. The correction mechanism exists but consumes time that the fifteen-day certificate window does not readily accommodate.

Third, secondary commentary is currently unreliable in this area. The migration from the 1961 Act to the 2025 Act, occurring alongside the threshold amendment made by the Finance Act, 2025 and the rate reduction made in 2024, has produced a body of published material in which the annual threshold of two lakh forty thousand rupees and the rate of five per cent both continue to appear. Both are superseded. Positions taken in a residential tenancy should be checked against the text of Section 393 and the Income-tax Rules, 2026 rather than against a summary.

5. Conclusion

The Income-tax Act, 2025 has made the law on withholding from rent easier to locate and harder to misapply in principle. A single table now sets out the rate, the payer category and the threshold, and a single defined expression separates the two regimes. Aligning the threshold at fifty thousand rupees for a month or part of a month removes a distinction with no evident policy justification, and consolidating four challan-cum-statements into Form 141 and three certificates into Form 132 reduces the number of procedures a taxpayer must learn.

The restructuring has not changed the underlying difficulty, which is one of awareness rather than complexity. The obligation to deduct from residential rent attaches to individuals who are not otherwise engaged with the withholding machinery, arises once a year in a month when attention is elsewhere, and is enforced through interest that runs from the date of the omission and a fee that accrues daily. The gap between the modest effort required to comply and the open-ended cost of not complying is wider here than in most areas of the Act.

For organisations, immediate priorities include section-code mapping in accounts payable systems, recalibrating thresholds from an annual aggregate to a monthly test, and a considered view on whether residential leases should be held by the organisation or the employee. For individuals, the priority is simpler: to establish, before the tenancy is signed, whether the rent crosses the threshold, whether the landlord holds a valid PAN, and whether the landlord is resident. Each of those three questions has a materially different answer attached to it, and each is far easier to ask at the outset than to answer retrospectively.

For landlords, the transition is an opportunity to align the tax withheld with the tax finally payable. The certificate mechanism under Section 395, now available across the range of withholding entries, is materially under-used in residential lettings, particularly by landlords with financed properties and by non-residents, for whom deduction on gross rent bears little relationship to the eventual liability.

Finally, the position stated in this article reflects the law as it stands early in the first tax year of the new statute. Chapter XIX has historically been among the most frequently amended parts of the direct tax code. Certain questions identified in the discussion—particularly the threshold treatment of a part-month and the deduction base where rent first crosses the monthly threshold during the year—remain matters for which specific administrative or judicial clarification would be useful. By contrast, the higher-rate no-PAN cap for Serial Number 2(i) is expressly preserved by Section 397(2)(e). Positions taken in relation to any particular tenancy should therefore be tested against the text in force on the date of the transaction.