Budget 2025: Threshold for TDS Under Section 194-I on Rent Increased

Budget 2025 introduced a significant modification to the TDS framework under Section 194-I — the provision that governs tax deduction at source on rent. By increasing the monetary threshold, the Government intends to lower compliance friction for individuals and small businesses, improve landlord liquidity and align the TDS regime with contemporary rental markets.

What Section 194-I covers

Section 194-I mandates TDS on rent paid for land, buildings (residential or commercial), plant and machinery, furniture and fittings, and equipment. Historically, tenants had to deduct TDS when cumulative rent crossed the prescribed threshold in a financial year.

Why the threshold became outdated

Over time inflation and market growth eroded the real value of the threshold, pulling small rental arrangements into the TDS net and creating administrative burden for tenants and reconciliation headaches for landlords.

Reducing compliance burden

Many small businesses, professionals and individuals faced complex TDS obligations despite low-value rentals. Raising the threshold removes unnecessary TAN obligations, quarterly filings and penalties for small tenants.

Improving landlord liquidity

Small property owners and retirees benefit from receiving full rent without TDS withholding, improving cash flow and simplifying their tax filings.

Aligning policy with market realities

Updating thresholds to reflect inflation and market rents restores policy relevance and reduces micro-level compliance friction.

Rationalising the TDS framework

The increase is part of a broader simplification agenda to eliminate unnecessary deduction triggers and focus withholding on material transactions.

Budget 2025 increases the annual monetary threshold for applicability of TDS under Section 194-I. Practically, this means tenants will deduct TDS on rent only when annual payments exceed the revised cap. The change brings fewer low-value rental transactions within the TDS net, reducing filings and administrative tracking.

Note: This briefing intentionally refrains from quoting a specific numeric value — always confirm the exact threshold and effective date from the official Finance Bill or Gazette notification before operational updates.

Expected outcomes

• Fewer TDS deductions on small residential and small commercial leases.
• Reduced need for TAN registration for casual tenants.
• Cleaner pre-filled returns for landlords and fewer mismatch notices.

Continued applicability for high-value rentals

The threshold increase does not affect TDS on high-value rentals; firms or tenants paying large rent for commercial properties, warehouses or industrial facilities will continue to deduct TDS if payments exceed the revised threshold.

Budget 2025’s update to Section 194-I does not change the specific rules under Section 194-IB (which applies to rent paid by individuals/HUFs not required to obtain TAN). The revised limit under 194-I helps delineate applicability between the two provisions: more small rentals fall outside 194-I, and 194-IB continues to apply where prescribed by that section.

Automated deduction logic

Accounting systems, ERPs and payroll engines must be updated to incorporate the new threshold to avoid erroneous TDS deductions. This reduces manual errors and administrative burden.

Cleaner pre-filled returns

With fewer TDS entries, landlords’ pre-filled returns become simpler and validation easier—reducing mismatch-based notices arising from late deposits, PAN errors or tenant filing mistakes.

Reduced notices and disputes

A major source of mismatch notices has been incorrect TDS on rent; the threshold change will curtail such disputes, lowering administrative overhead for tax authorities and taxpayers.

Residential rentals become marginally more attractive as compliance friction reduces. Small commercial leases and co-working models benefit from reduced monthly deduction burdens. Tenant-landlord relationships may improve as direct payment flows are simplified.

The Government expects that short-term reductions in TDS collections will be offset by improved compliance, lower avoidance, and administrative efficiencies. The policy reflects a preference for systemic simplification over micro-level withholding on low-value transactions.

For Tenants

• Review rental agreements and check whether cumulative annual payments exceed the revised limit.
• Update accounting software and automated TDS logic.
• Where TDS is required, ensure timely deposit and correct filing to avoid penalties.

For Landlords

• Re-evaluate annual tax planning assuming fewer TDS credits; plan estimated tax payments accordingly.
• Keep PAN and bank documentation updated to avoid any future reconciliation issues.
• Monitor Form 26AS and other AIS entries for correctness when TDS is deducted.

Budget 2025’s decision to increase the TDS threshold under Section 194-I represents a pragmatic step toward reducing compliance burden, improving cash flow for small landlords, and aligning tax withholding with material transactions. Taxpayers should confirm exact numeric limits from official texts and update systems and processes promptly to reflect the change.

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