Boosting Rental Housing: How Budget 2025’s TDS Reforms Can Unlock a Flood of Homes

A Bold Move to Strengthen the Rental Housing Market

Finance Minister Nirmala Sitharaman’s Budget 2025 announcement to raise the TDS (Tax Deducted at Source) threshold on rental income has been widely welcomed by industry experts, landlords, and tenants alike. Previously, tenants were required to deduct 10% TDS if their rent exceeded ₹2.4 lakh per annum (₹20,000 per month). The new ₹6 lakh annual threshold (₹50,000 per month) is expected to significantly ease compliance requirements and increase the number of homes available for rent—particularly in metro cities.

The impact of this policy is twofold:

• Encouraging landlords to rent out vacant homes instead of keeping them idle.

• Reducing tax compliance burdens for both tenants and property owners.

Saurabh Runwal, Director at Runwal Realty, believes that this change will stimulate the rental market, drive investments in rental properties, and increase housing supply, particularly in the affordable housing segment.

Metros to Gain the Most from TDS Relaxation

The revised TDS threshold is expected to have the greatest impact in metro cities and large urban centers, where rental prices are significantly higher than in smaller towns.

📌 Major Beneficiaries:
✔ Metro cities like Mumbai, Bengaluru, and Delhi, where high rents often exceeded the previous ₹2.4 lakh threshold.
✔ Seniors and retirees, who rely on rental income as a steady revenue stream.
✔ Investor-owners and speculative buyers, who may now be more inclined to rent out their properties instead of leaving them unoccupied.

According to Saurabh Garg, Co-Founder & Chief Business Officer at NoBroker, this reform will push landlords to release more homes for rent, potentially lowering rental prices by increasing housing supply.

“A large number of properties in India remain vacant due to low rental yields and complex TDS regulations. This change will benefit both landlords and tenants, especially in big cities. However, more states need to adopt the Model Tenancy Act to truly transform rental housing,” said Garg.

Unlocking Over One Crore Homes for Rent

Industry estimates suggest that over 1 crore homes in major housing markets remain unoccupied because landlords prefer to wait for property appreciation rather than renting out their homes.

Why Were Landlords Reluctant to Rent?

1️⃣ Low Rental Yields: The national rental yield average is around 3%, making home appreciation a more attractive option than renting.
2️⃣ TDS Compliance Hassles: The previous threshold (₹2.4 lakh) meant landlords had to declare rental income and tenants had to deduct TDS, making compliance cumbersome.
3️⃣ Investor Strategy: Many property investors preferred to hold onto vacant homes, waiting for property prices to rise rather than dealing with rental management issues.

Developers had long been demanding that the TDS threshold be raised from the outdated ₹2.4 lakh limit, arguing that it was discouraging property owners from participating in the rental market.

This reform is expected to increase housing supply, help tenants find better rental options, and create a healthier rental ecosystem.

How This TDS Reform Will Impact the Market

📌 What’s Changing?
✅ TDS threshold increased from ₹2.4 lakh to ₹6 lakh per annum (₹20,000 to ₹50,000 per month).
✅ Fewer tenants required to deduct TDS, making renting easier.
✅ More rental properties expected to hit the market, leading to better affordability for tenants.

📌 Expected Benefits:
✔ Higher rental supply, reducing housing shortages in metros.
✔ Simplified tax compliance for both tenants and landlords.
✔ Encouragement for investment in rental properties, driving sector growth.
✔ Greater income security for retirees and seniors.

📌 Remaining Challenges:

• Rental yield remains low (~3%), so further incentives may be needed.

• States need to adopt the Model Tenancy Act for long-term rental market reforms.

• Investor psychology—many landlords may still prefer capital appreciation over rental income.

The Legal Side: TDS Under Section 194-I

Under Section 194-I of the Income Tax Act, tenants are required to deduct 10% TDS on rent paid to landlords if the amount exceeds the set threshold.

📌 Key Provisions:

• TDS Rate: 10% for rent paid on land or property.

• PAN Requirement: If the landlord fails to provide a PAN, the TDS deduction increases to 20%.

• Previous Threshold: ₹2.4 lakh per annum (₹20,000/month).

• New Threshold: ₹6 lakh per annum (₹50,000/month).

This major shift reduces tax obligations for many middle-class tenants who previously had to deduct TDS and file additional paperwork.

Final Thoughts: A Step Forward, But More Reforms Needed

The increase in the TDS threshold is a welcome step, but experts believe more needs to be done to boost rental housing growth.

📌 What’s Next?
🔹 States need to implement the Model Tenancy Act to provide a structured legal framework for rental agreements.
🔹 More incentives for landlords, such as tax benefits on rental income, could further encourage participation.
🔹 A push for better rental yields by developing co-living and affordable rental schemes.

Overall, this budget reform is expected to unlock thousands of new rental homes, improve affordability, and encourage long-term investment in rental housing—especially in India’s metro cities. However, a broader policy framework is needed to ensure sustained growth in the sector.