TDS and GST on Rent: What Your Rent Agreement Should Say

When is TDS deducted on rent?

Under the Income-tax Act, 1961, as amended for FY 2025-26, two provisions dealt with TDS on rent. Section 194-I applies to tenants other than individuals and HUFs not liable to tax audit, which in practice means companies, firms, LLPs and individuals or HUFs whose business accounts are audited. From 1 April 2025, the threshold was ₹50,000 for a month or part of a month. The rate was 10% for land, buildings and furniture, and 2% for plant, machinery and equipment.

Section 194-IB applies to individuals and HUFs who are not covered by section 194-I, such as salaried tenants. If rent exceeds ₹50,000 for a month or part of a month, the tenant must deduct TDS at 2%, a rate that applies from 1 October 2024 after being reduced from 5%. The deduction is made once, from the rent for the last month of the financial year or the last month of the tenancy, whichever is earlier. The tenant does not need a TAN; the tax is paid through Form 26QC, and a certificate in Form 16C is issued to the landlord.

If the landlord does not provide a PAN, a higher rate of TDS applies. Ask for the landlord's PAN before signing and record it in the agreement.

What changes for TDS on rent in FY 2026-27?

The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961. It was framed largely to restate the old law in simpler language, but it renumbered provisions throughout, so references to sections 194-I and 194-IB are now references to a repealed statute for payments made on or after 1 April 2026.

If you are searching for the TDS on rent limit for FY 2026-27, check the current Finance Act and the new Act's TDS provisions, or ask your chartered accountant, rather than relying on articles that cite the old section numbers. Update the TDS clause in any agreement renewed after 1 April 2026 so it refers to "tax deductible at source under applicable law" rather than a specific old section.

Is GST payable on rent of residential property?

Usually not, if a residential dwelling is let for use as a residence to an individual who is not GST-registered. That exemption covers most family tenancies.

The position changes when the tenant is registered under GST. Since 18 July 2022, renting a residential dwelling to a registered person is taxable, and the tenant pays GST at 18% under the reverse charge mechanism. A company or firm that rents a flat as accommodation for a director or employee usually falls in this category. From 1 January 2023, a carve-out applies where a registered proprietor rents a dwelling in a personal capacity for his or her own residence, and not on account of the business.

If you are a GST-registered professional or business owner taking a flat for your family, make sure the agreement is in your personal name and the use is residential, and check the position with your accountant. Getting this wrong can mean an unexpected reverse charge liability with interest.

GST on commercial rent

Renting commercial property, such as an office, shop or warehouse, is a taxable supply, generally at 18%. If the landlord is registered under GST, the landlord charges GST on the invoice and the tenant pays it with the rent. A business tenant can usually claim input tax credit, subject to the normal conditions.

If the landlord is not registered, perhaps because the landlord's turnover is below the registration threshold, the position changed from 10 October 2024. A GST-registered tenant renting commercial property from an unregistered landlord pays GST under reverse charge, with some later exceptions, including for tenants under the composition scheme. Check the current notifications before signing a commercial lease.

The Central Board of Direct Taxes has clarified that where GST is shown separately on the invoice, TDS under section 194-I is calculated on the rent excluding GST. The agreement should therefore show rent and GST as separate figures.

TDS and GST on rent at a glance

Does TDS apply if the landlord is an NRI?

Yes, and the rules are stricter. Rent paid to a non-resident landlord falls under a separate provision, section 195 of the 1961 Act for FY 2025-26, which has no ₹50,000 monthly threshold and carries higher rates. The tenant generally needs a TAN, must deposit the tax and file returns, and must issue a certificate. Many tenants of NRI landlords do not realise this until a notice arrives.

If your landlord lives abroad, ask whether the landlord has a lower deduction certificate from the tax department, and write the TDS arrangement into the agreement. Consider asking a chartered accountant to handle the compliance for the first year.

Who carries the risk if the agreement is silent?

Tax law, not the agreement, decides who must deduct TDS and who must pay GST under reverse charge. A clause saying "the landlord will handle all taxes" does not relieve a tenant who is legally required to deduct TDS, and it does not relieve a registered tenant of a reverse charge liability. The contract can only decide who bears the economic cost between the two of you.

That is why some landlords ask for a gross-up clause, under which the tenant pays a higher amount so that the landlord receives the agreed figure after TDS. Gross-up is a commercial choice, not a legal requirement. If you accept it, the rent for TDS purposes becomes the grossed-up amount, which can push you over the threshold.

For the landlord, the TDS deducted is not lost. It is credited against the landlord's own income tax, provided the tenant deposits it correctly and the landlord's PAN is quoted. Landlords should check their annual tax statement to confirm that the credit appears, and raise any mismatch with the tenant quickly.

What should the rent agreement say about TDS and GST?

A good tax clause prevents arguments about money that both sides thought the other was handling. Ask for these points in writing.

• Rent figure stated separately from GST, and whether GST is payable in addition to rent.
• The landlord's PAN and, if registered, GSTIN, with an obligation to inform the tenant of any change.
• A statement that the tenant will deduct TDS as required by law and that the landlord accepts the net amount as full payment.
• A deadline for the tenant to deposit TDS and issue the TDS certificate to the landlord.
• For commercial leases, who bears GST under reverse charge and how invoices will be issued.
• Whether any security deposit is refundable without deduction of tax, so it is not mistaken for rent.

Common mistakes in rent agreements

The first is a "rent inclusive of all taxes" clause in a commercial lease. If GST applies, an inclusive figure means the landlord receives less than expected, or the tenant later faces a demand for the tax portion. State the base rent and add GST separately.

The second is splitting rent artificially, for example ₹45,000 as rent and ₹15,000 as maintenance paid to the landlord, to stay below the TDS threshold. The tax department looks at what is actually paid for use of the premises, and amounts paid to the landlord for amenities can be treated as rent. Interest and penalties for non-deduction fall on the tenant.

The third is silence on TDS where monthly rent is just above ₹50,000. Landlords are often surprised to receive a reduced payment in March. Agree the treatment at the start and avoid a dispute at year end.

Finally, if you claim house rent allowance, employers usually ask for the landlord's PAN where annual rent exceeds ₹1 lakh. Get it at the time of signing, not in January when declarations are due.