TDS on rent above Rs 50,000: does builder-paid transit rent count?

Members often ask whether TDS applies to transit rent. There are really two questions hiding inside one, and they have opposite answers. Getting them the wrong way round is the commonest mistake we see during redevelopment.

Two separate legs. If you pay a transit landlord more than Rs 50,000 a month, you must deduct 2 per cent TDS once a year in March, even though the builder funded the rent. When the builder pays transit rent to you, no TDS arises on the prevailing view.

During redevelopment the word "rent" travels in two directions, and the tax treatment is not the same in both. Keep the two legs apart and the compliance becomes straightforward.

If I pay my transit landlord more than Rs 50,000 a month, must I deduct TDS?

Yes. A displaced member who is an individual or HUF, and is not a "specified person", paying a resident landlord rent exceeding Rs 50,000 for a month or part of a month must deduct tax at 2 per cent. That is Section 393(1), Table Sl. No. 2(i) of the Income-tax Act 2025, in force from 1 April 2026 — the successor to the old Section 194-IB, where the rate fell from 5 to 2 per cent with effect from 1 October 2024.

The fact that the money reached you from the builder is legally irrelevant. You are the payer, and the obligation is personal to you.

Deduct once, not monthly — at credit or payment of rent for March, or for the last month of the tenancy if you vacate earlier, whichever is earlier, computed on the whole year's rent.
Rs 75,000 a month for a full year: deduct 2 per cent of Rs 9,00,000, that is Rs 18,000, in March.
No TAN needed — file through your PAN login. A challan-cum-statement goes in within 30 days from the end of the month of deduction, and you issue a certificate to the landlord.
No PAN from the landlord? Deduct at 20 per cent, capped at the rent payable for the last month.

Two things change this. If your landlord is a non-resident — common in Mumbai — you fall under the successor to Section 195 instead: roughly 30 per cent plus surcharge and cess, no monthly threshold, TAN mandatory, deducted monthly. Deducting 2 per cent where about 30 per cent was due makes you an assessee-in-default. Confirm the landlord's residential status in writing before signing the leave-and-licence agreement. And if you yourself run a business above Rs 1 crore turnover or a profession above Rs 50 lakh gross receipts, you are a "specified person" and deduct at 10 per cent, monthly, with a TAN.

Should the builder deduct TDS on the transit rent he pays me?

On the prevailing and well-supported view, no. Transit rent is compensation for being dispossessed, not consideration for the use of property. It is therefore not "rent" and not a taxable revenue receipt, and no TDS arises. The support is Sarfaraz S. Furniturewalla v. Afshan Sharfali Ashok Kumar, Writ Petition No. 4958 of 2024, Bombay High Court, 15 April 2024.

That said, the point is not beyond argument: it was a civil writ in which the Income Tax Department was not a party. Many developers still deduct defensively. If yours does, your remedy is to claim credit and seek a refund — not to treat the deduction as proof that the receipt is taxable.

How do I check whether the rent offered is even enough?

Before worrying about deduction, test the number itself. Our rent comparison tool shows what similar flats in your area actually fetch, so you can see whether the builder's offer will cover a genuine transit flat. The transit and construction guide covers escalation, deposits and delays, and our TDS on property purchase page deals with the separate deduction that arises on buying a flat.

Rent, residential status and your own turnover all shift the answer, so please have your chartered accountant confirm the position on your facts before you sign.

Work it out for your own society

Check whether the transit rent your builder is offering matches what flats like yours actually rent for in your area — before you sign anything.

Open the Rent Comparison Tool

Common questions

The builder pays my transit rent directly to my landlord. Do I still have to deduct TDS?

Yes, if the rent exceeds Rs 50,000 a month and the landlord is resident. The obligation follows the tenant under the leave-and-licence agreement, not whoever's bank account the money leaves from. Where the funds came from does not change your personal liability to deduct at 2 per cent.

Do I have to deduct the 2 per cent every month?

No. You deduct once, on the whole year's rent, at credit or payment of rent for March — or for the last month of the tenancy if you vacate the transit flat earlier, whichever comes first. Monthly deduction applies only if you are a specified person or your landlord is a non-resident.

My builder deducted TDS on the transit rent he paid me. Is that correct?

Many developers deduct defensively even though the prevailing view is that transit rent is compensation, not taxable rent. The deduction does not settle the question. Claim credit for the tax deducted and seek a refund in your return, and ask your chartered accountant to review your position.