India’s monthly Rs 50,000 rent test catches taxpayers using outdated TDS rules

Since April 2025, rent TDS has hinged on whether payments exceed Rs 50,000 in a month or part of a month, not the former annual threshold. Businesses and tenants must also check rates, lease end dates and which tax law applies.

India’s rent withholding rules have changed in a way that has caught many taxpayers off guard. Since 1 April 2025, the key test for tax deducted at source on rent has been whether the rent for a month, or part of a month, exceeds Rs 50,000, rather than whether annual rent crosses an old aggregate threshold. The Income Tax Department says the rates remain unchanged: 10% for land, buildings, furniture and fittings, and 2% for plant, machinery and equipment. From 1 April 2026, those rent provisions sit in section 393 of the Income-tax Act, 2025, marking the shift from the 1961 Act to the new framework.

That change has created practical mistakes in bookkeeping, especially where old lease files still reflect the earlier annual test. Under the updated rule, a company paying Rs 48,000 a month for office space does not deduct tax, even though the annual amount is well above the old Rs 2.4 lakh ceiling. By contrast, equipment hire still attracts the lower 2% rate once the monthly threshold is crossed. The Income Tax Department’s section 194-I guidance and the Finance Act, 2025 summary both confirm the monthly threshold and the continued distinction between premises and machinery payments.

The timing of deductions can also be more nuanced than many payroll or accounts teams expect. Where a lease begins or ends mid-month, the law refers to rent for a month or part of a month, which means the calculation may turn on the actual period covered. The department’s guidance for individuals and Hindu undivided families under section 194-IB also shows that the once-a-year deduction is taken in the final month of the financial year or tenancy, whichever comes first. If a landlord does not provide a PAN, the rate rises to 20%, though the deduction is capped at the rent for the last month. The Income Tax Department’s tutorial also notes the use of PAN rather than TAN for this route and the filing mechanics that follow.

There are several other points that routinely matter in practice. Where GST is shown separately in the invoice or agreement, CBDT Circular 23/2017 says TDS should be calculated on the rent amount excluding GST. Refundable security deposits are not rent, but non-refundable deposits, or sums later adjusted against rent, are treated as rent for the period to which they apply. Maintenance charges may also count as rent if they are paid to the landlord as part of the consideration for use of the property, though charges paid to a society or service provider may fall under different tax provisions. Advance rent should be deducted when it is paid, not spread across the months it covers.

For businesses, the safest approach is a quick file review: list every rent recipient, confirm the monthly figure, check whether any payment crosses Rs 50,000 for a month or part of a month, and make sure the correct rate is applied to each type of asset. Individual tenants should also watch for leases that end before March, because the once-a-year deduction may fall sooner than expected. The Income Tax Department’s e-filing guidance says payments made on or before 31 March 2026 fall under the 1961 Act, while those made on or after 1 April 2026 are governed by the 2025 Act, so year-end provisions and payment dates now matter as much as the rent itself.