Lower or Nil TDS on Rent: Procedure and Eligibility – myITreturn Help Center

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FY 2025-26: Sections 194-I, 194-IB, 195 and 197, Income-tax Act, 1961
Tax year 2026-27: Sections 393 and 395, Income-tax Act, 2025

A landlord may apply for a certificate allowing rent to be received after deduction of tax at a lower rate or without deduction where the normal TDS would exceed the expected tax liability. Eligibility depends on the rent provision, residential status and the law applicable to the payment year.

Normal TDS on Rent for FY 2025-26

Provision	When it applies	Rate and threshold
Section 194-I	Rent paid to a resident by a payer covered by the provision.	2% for plant, machinery or equipment; 10% for land, building, furniture or fittings. Threshold: rent exceeding ₹50,000 for a month or part of a month from 1 April 2025.
Section 194-IB	Rent paid to a resident by an individual or HUF not required to deduct under section 194-I.	2% where rent exceeds ₹50,000 for a month or part of a month; generally deducted in the last month of the financial year or tenancy.
Section 195	Rent or other taxable payment to a non-resident.	TDS at the applicable rate in force, subject to the Act, treaty and chargeable amount.

Section 194-IB limitation: The lower/nil certificate mechanism under section 197 does not extend to section 194-IB. A tenant covered by section 194-IB should not apply a Form 13 certificate unless the law specifically supports it.

Who May Apply under the 1961 Act?

A resident landlord receiving rent subject to section 194-I may apply under section 197 using Form 13.
A non-resident recipient may apply for a lower/nil certificate for eligible payments subject to section 195.
A payer making a non-resident payment may separately examine an application under section 195(2) for determination of the appropriate taxable portion.

When Is a Lower or Nil Certificate Appropriate?

The Assessing Officer considers the estimated total income and expected tax liability. A certificate may be relevant where:

Allowable interest, municipal taxes or other deductions substantially reduce taxable rental income.
Brought-forward losses or current-year losses reduce the expected taxable income.
Estimated total tax is lower than TDS at the normal rate.
A non-resident’s payment contains an amount not chargeable to tax in India.

Application Procedure

Prepare estimated income, tax computation and details of expected rent.
Collect prior returns, assessment details, loss records, rent agreement and payer information.
File Form 13 electronically under section 197 for FY 2025-26, where eligible.
Provide the deductor’s PAN/TAN, expected payment and period accurately.
Respond to any clarification requested by the Assessing Officer.
After issue, give the certificate details to the deductor.
The deductor should verify the certificate and apply only the approved rate, amount, payer and validity period.

Certificate is generally prospective. The reduced rate should be used only after a valid certificate is issued and only for payments covered by it. It should not be treated as blanket retrospective relief.

Tax Year 2026-27 under the Income-tax Act, 2025

For payments governed by the Income-tax Act, 2025 from 1 April 2026:

Section 393 consolidates resident rent TDS. Rent paid by a person other than a specified person is subject to 2% TDS above ₹50,000 for a month or part of a month.
For a specified person, the rate is 2% for machinery, plant or equipment and 10% for land, building, furniture or fittings, with the same monthly threshold.
Section 395 provides the lower/nil deduction certificate mechanism.
The prescribed application is Form 128 under the Income-tax Rules, 2026.

Transition protection: An eligible certificate issued under section 197 of the 1961 Act for projected receipts in tax year 2026-27 may continue according to the official transition rules. Check its payer, amount, rate and validity before use.

Common Mistakes

Using a certificate for a different tenant or TAN.
Applying the reduced rate before the certificate date.
Ignoring the distinction between resident and non-resident landlords.
Assuming a nil certificate eliminates the need to report rental income in the ITR.
Continuing to use an expired or exhausted certificate.

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