Budget boost for rental income earners as Sitharaman hikes TDS limit to Rs 6 lakh

Nirmala Sitharaman announced that the "annual limit of Rs 2.40 lakh for TDS on rent is being increased to Rs 6 lakh".

Finance Minister Nirmala Sitharaman on Saturday proposed to enhance annual threshold for deduction of tax at source (TDS) on rent to Rs 6 lakh from the current limit of Rs 2.4 lakh.

"I propose to rationalise Tax Deduction at Source (TDS) by reducing the number of rates and thresholds above which TDS is deducted. Further, threshold amounts for tax deduction will be increased for better clarity and uniformity,” Finance Minister Nirmala Sitharaman said in her Budget speech. She announced that the ”annual limit of Rs 2.40 lakh for TDS on rent is being increased to Rs 6 lakh”. This will reduce the number of transactions liable to TDS, thus benefitting small taxpayers receiving small payments, the finance minister added.

Annual limit for TDS on rent to be increased from ₹2.40 lakh to ₹6 lakh: Explained

Amit Gupta, Partner at Saraf and Partners explains the new proposal at the Union Budget.

"Under the existing provisions of Section 194-I of the Income Tax Act,1961(ITA) the Tax Deduction at Source (TDS) on rent was mandatory for persons(other than Individuals carrying on business with turnovers exceeding prescribed thresholds) making rental payments. Such provisions were not applicable where such annual rental payments did not exceed Rs 2,40,000. However, for individuals only rental payments beyond Rs 50,000 per month attracted TDS obligations under separate provisions of Section 194IB of the ITA.

In the Budget proposal vide Finance Bill 2025, under the umbrella of further rationalizing TDS provisions by streamlining the rates and enhancing thresholds warranting TDS deductions, the legislators aim to provide benefit to small taxpayers and also bring about uniformity and clarity.
One such proposed change is with respect to TDS on rent under Section 194-I of the ITA wherein the existing annual threshold of Rs 240,000 has been enhanced to Rs 50,000/month in line with the provisions of Section 194B of the ITA.

Thus, TDS payments by any person will only attract TDS obligations if the monthly rentals exceed Rs50,000 which would absolve smaller rental payments from the TDS withholding obligations.

According to the Budget document, Section 194-I of the Income Tax Act requires that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, should deduct income tax at the applicable rates, only when the amount of such rental income exceeds Rs 2.4 lakh in a financial year. ”It is proposed to increase this threshold amount of income by way of rent for requirement of deduction of tax at source from Rs 2.4 lakh in a financial year to Rs 50,000 in a month or part of a month,” it added.

On the annual limit for TDS on rent, Rajarshi Dasgupta, Executive Director, AQUILAW said, “The Budget increases the threshold for the annual limit for TDS on rent from 2.40 to ₹6 lakh. This will reduce the number of transactions liable to TDS, thus benefiting small taxpayers receiving small payments.”

Manmeet Kaur, Partner at Karanjawala & Co said," In order to rationalize Tax Deduction at Source (TDS) by reducing the number of rates and thresholds above which TDS is deducted. In a welcoming move by the Finance Minister the threshold amounts for tax deduction have been increased from the annual limit of 2.40 lakh to 6 lakh on rent. This will reduce the number of transactions liable to TDS, thus benefitting small tax payers receiving small payments."