How the Union Budget’s TDS Update Can Drive Growth in Rental Housing?

The recent Union Budget has introduced a significant change in tax deduction at source (TDS) on rental income. The threshold for TDS has been raised from Rs 2.4 lakh per annum to Rs 6 lakh per annum. This adjustment is expected to impact the rental housing market, particularly in metropolitan areas and large cities where rental values are closer to the new threshold.

Increased Supply of Rental Properties

One of the expected outcomes of this change is an increase in the availability of rental properties. Landlords who previously avoided renting out properties due to tax-related deductions may now reconsider. With a higher threshold, more rental agreements will remain below the taxable limit, encouraging property owners to put more homes on the market. This could lead to a rise in rental housing options, potentially stabilizing rental rates in the long run.

Additionally, small-scale landlords, who own one or two rental properties, will find the updated threshold beneficial as it reduces their tax burden. This could encourage individuals to invest in rental properties, further boosting the overall supply.

Mr. Harshvardhan Tibrewala, MD of Vida Realty, praised the increase in the TDS threshold for rental income, which has been raised from ₹2.4 lakh to ₹6 lakh per annum. This revision reduces the financial burden on smaller property owners, especially those with one or two rental properties. By making it easier for landlords to manage their tax obligations, the change could encourage more property owners to rent out their homes, potentially increasing the supply of rental properties in the market. He also also pointed out that with fewer tax-related hurdles, landlords will find the rental process smoother, which could stabilize rental rates and attract more property owners into the rental market.

Reduced Compliance Burden

The revision in TDS limits simplifies tax compliance for both landlords and tenants. Tenants paying rent below Rs 50,000 per month will no longer be required to deduct TDS, reducing their administrative burden. Landlords with rental income below Rs 6 lakh annually will also experience fewer tax-related formalities. This is expected to ease transactions in the rental sector, particularly in urban markets where a large segment of rental agreements fall within this range.

Furthermore, this move reduces disputes between tenants and landlords regarding tax deductions and filings. Many tenants were unaware of TDS obligations, leading to compliance issues. With the revised threshold, fewer tenants and landlords will have to navigate complex tax procedures, making rental transactions smoother.

Sankey Prasad, CMD of Colliers India & the Middle East, highlighted the importance of the TDS update in impacting the rental housing market. With the raised exemption threshold, the Budget effectively reduces the tax compliance burden for landlords. This could lead to increased rental housing supply, as property owners will have fewer reasons to avoid renting their properties due to tax-related concerns. The revised TDS limit could particularly benefit landlords with lower-value properties, as more rental income would fall below the taxable limit. This change, coupled with broader efforts to support urban development, may result in a more active rental housing market, benefiting both landlords and tenants. 

Impact on Investor-Owned Properties

Additionally, the policy could attract non-resident Indian (NRI) investors who often hesitate to invest in rental properties due to taxation concerns. The revised threshold may provide NRIs with an added incentive to consider rental housing as a stable source of income in India.

Benefits for Retired Individuals

Many retired individuals depend on rental income as a supplementary source of earnings. The higher TDS threshold ensures that a larger portion of their rental income remains untaxed at the source, providing them with greater financial flexibility. This change is particularly relevant in cities where retirees own multiple properties and rely on rental income as a steady cash flow.

With reduced tax deductions, retirees can retain a higher share of their rental earnings without engaging in additional tax filings. This provides a level of financial security for individuals who rely on rental income alongside their pensions and savings.

Implications for the Rental Market

The rental housing market in India has been witnessing steady growth, particularly in metropolitan cities where migration for work and education continues to drive demand. The revision in TDS limits aligns with broader government efforts to improve rental housing availability. By lowering tax-related hurdles, the government aims to encourage more property owners to participate in the rental market, which could lead to a stabilization of rental prices over time.

However, the long-term impact on rental supply will also depend on other factors such as regulatory policies, urban development plans, and economic growth. While the TDS revision offers immediate relief, a holistic approach to rental housing policy is necessary for sustained improvements.

Ms. Amrita Gupta, Director of Manglam Group and Founder President of CREDAI Rajasthan Women’s Wing, also emphasized the role of TDS exemption revisions in driving demand for rental housing. The increase in the exemption limit for rental income will increase disposable income for property owners, leading to more investment in rental properties. By encouraging more landlords to enter the rental market, the policy is expected to increase the availability of rental properties, especially in urban areas where demand is high. Gupta noted that these changes, along with the targeted rental housing incentives in the Budget, will help boost the rental housing sector by making it more financially accessible for both landlords and tenants.

Way Forward

The revision in TDS limits on rental income is a step towards making rental housing more accessible and tax compliance easier. The change is likely to encourage more rental transactions, benefit property owners, and provide relief to tenants. However, its effectiveness in driving large-scale changes in rental housing supply and affordability will depend on broader economic factors and real estate market conditions.