Income from House Property & TDS on Rent: A Complete Guide
If you own a house that is let out, two separate tax questions apply. First, how much of your rental income is taxable — computed under "Income from House Property". Second, does your tenant have to deduct TDS before paying you — governed by separate provisions. Mixing the two up is one of the most common mistakes landlords make.
In this article
Two separate questions
Every page on rental income should answer two distinct things, and keep them separate:
- How much of my rental income is taxable? This is the landlord's house-property computation.
- Does my tenant need to deduct TDS, and how much? This is the tenant's withholding obligation.
Answer one, then the other. The first feeds into your total taxable income and tax liability. The second reduces the cash you actually receive — but the TDS you've already paid becomes a credit against that liability.
Who is the landlord? Resident vs NRI
The very first question for TDS is the landlord's residential status, not the tenant's. It changes everything:
Resident landlord: 194-IB and 194-I
When the landlord is a resident Indian, the tenant's own type decides the provision:
| Tenant type | Provision | Threshold | TDS rate |
|---|---|---|---|
| Individual / HUF (not covered by tax audit) | Section 194-IB | Rent above ₹50,000 per month | 2% |
| Company, Firm, LLP, or other applicable payer | Section 194-I | Any rent (no threshold) | 10% on land / building |
| Individual / HUF covered by tax audit (Section 44AB) | Section 194-I | Any rent (no threshold) | 10% on land / building |
Section 194-IB — the "individual tenant" provision
If you are an individual or HUF renting a house (not a tenant that is a company or firm), you must deduct TDS at 2% when the monthly rent exceeds ₹50,000. Below that limit, no TDS is required. Two practical points:
- You do not need a TAN (Tax Deduction and Collection Account Number) to deduct under 194-IB.
- You generally deduct TDS only once a year — in the last month of the financial year, or in the last month of the tenancy if the property is vacated earlier — at the earlier of credit or payment.
Section 194-I — companies, firms, and tax-audited individuals
If the tenant is a company, partnership firm, or LLP, rent attracts TDS under Section 194-I at 10% for land or building, with no ₹50,000 threshold. The same 194-I regime catches an individual/HUF whose business or profession crosses the Section 44AB tax-audit threshold — a crucial exception because it pulls that person out of the friendlier 194-IB rules.
NRI landlord: Section 195
If the landlord is a non-resident, do not apply 194-IB at all. Where rent is paid to a non-resident, TDS is governed by Section 195.
Don't hard-code a flat NRI rate. Section 195 operates on the applicable rate in force, which can include surcharge and cess where relevant, and may be reduced by a Double Taxation Avoidance Agreement (DTAA) if the landlord is eligible. A simple "30%" shortcut is unsafe. Determine the rate from the applicable tax provisions and the landlord's DTAA position.
The tenant is the deductor
Getting the direction right matters. It is the tenant (the payer) who deducts TDS from the rent and deposits it with the government — not the landlord.
The ₹1,200 is not an additional expense for the tenant. It belongs to the landlord's ₹60,000 rent; the tenant simply withholds it and deposits it with the government on the landlord's behalf. The landlord then gets credit for that TDS against their own tax liability.
How rental income is taxed
Separately from TDS, the landlord computes the taxable income from the property through a defined chain:
TDS is a credit, not a deduction
TDS is NOT: Rental income − TDS = taxable rental income.
TDS is: Rental income → house-property computation → taxable income → tax liability → LESS TDS → final tax payable / refund.
This is the single most common error in rental-income articles. TDS never reduces your taxable income — it is a prepayment that reduces the tax you still owe. If your total liability is less than the TDS deducted, you get the difference back as a refund.
Worked example
Resident landlord. Monthly rent ₹60,000, tenant is an individual, landlord is resident, tenant covered by Section 194-IB.
| Tenant's TDS computation | Amount (₹) |
|---|---|
| Monthly rent | 60,000 |
| TDS rate (Section 194-IB) | 2% |
| TDS withheld in the last month of the year | 1,200 |
| Net rent paid to landlord that month | 58,800 |
| Deposited with government as TDS | 1,200 |
Now the landlord's own computation for the year (annual rent ₹7,20,000):
| Landlord's house-property computation | Amount (₹) |
|---|---|
| Gross Annual Value | 7,20,000 |
| Less: Municipal taxes paid | − 30,000 |
| Net Annual Value | 6,90,000 |
| Less: 30% standard deduction | − 2,07,000 |
| Income from house property (before interest) | 4,83,000 |
| Less: Eligible home loan interest (u/s 24b) | − 2,00,000 |
| Taxable income from house property | 2,83,000 |
This ₹2,83,000 is added to salary and other income to arrive at total taxable income. The tax is then computed on that total — and only after that is the ₹1,200 TDS credit deducted, giving the final amount payable or the refund due.
A note on the new Income-tax Act
Year-aware rules: The Income-tax Act, 2025 applies from FY 2026-27 (1 April 2026 onwards), while transactions up to 31 March 2026 remain under the Income-tax Act, 1961. The substance of the rent-TDS and house-property rules carries over, but section numbers and forms can change. Always check the year you're filing for before relying on a specific section reference.
Related guides: See New vs Old Tax Regime to see which regime you should compute the rental income under, and the residential status flowchart to determine whether the landlord is treated as resident or non-resident.