The Indian real estate landscape is witnessing its most structural transformation in seven decades. As of July 1, 2025, the era of informal, verbal tenancy agreements has officially ended. With the operationalization of the Model Tenancy Act (MTA) 2021 and the implementation of the Home Rent Rules 2025, landlords and tenants must now navigate a strictly regulated, contract-driven regime.
This shift is not just administrative but fiscal. Consequential amendments in the Finance Act 2025 have revised TDS thresholds under Section 194-I and 194-IB, impacting every rental transaction exceeding ₹50,000 per month. From the mandatory generation of a Tenancy ID to the new 2-month cap on residential security deposits, the rules of engagement have changed.
In this legal breakdown, the Evaakil Research Team analyzes the shift from welfare-based rent control to market-driven rates. We decode the new three-tier dispute resolution mechanism designed to settle eviction cases in 60 days, explain the “Force Majeure” shield for tenants, and provide ready-to-use 2025 compliant rental agreement templates to ensure you remain on the right side of the law.
Structural Transformation of Indian Rental Housing.
The Home Rent Rules 2025 and new fiscal statutes have ended the era of informal tenancy. Here is the legal breakdown.
Evaakil Research Team
22 min read
The Indian real estate sector is undergoing its most significant legislative overhaul in seven decades. The year 2025 marks the convergence of judicial, legislative, and fiscal reforms aimed at formalizing the rental housing market. This report analyzes the Home Rent Rules 2025, the operationalization of the Model Tenancy Act (MTA) 2021, and consequential amendments in the Finance Act 2025.
Key developments include the mandatory digitization of tenancy agreements effective July 1, 2025, a strict two-month cap on residential security deposits, and a specialized three-tier dispute resolution mechanism. Furthermore, fiscal amendments to Section 194-I and Section 194-IB of the Income Tax Act have rationalized Tax Deducted at Source (TDS) thresholds to ₹6 lakh annually.
The Shift: Welfare to Contract
Historically, Rent Control Acts (circa 1947) froze yields and disincentivized maintenance. This created two market failures: housing stock atrophy and artificial scarcity. Over 11 million urban units sat vacant due to the fear of “adverse possession.”
The 2025 reforms replace this with a contract-driven regime where the written agreement is supreme.
The Digital Mandate & Tenancy ID
The core of the reform is the end of verbal agreements. Under Section 4, landlords and tenants must jointly inform the Rent Authority about the tenancy within 60 days of signing via the digital portal. Upon successful verification, a unique “Tenancy ID” is issued, which is now mandatory for electricity connections in some municipalities.
The July 1, 2025 Watershed
From July 1, 2025, physical stamp paper is invalid for new agreements in notified jurisdictions. Digital stamping (e-stamping) is mandatory to prevent backdating. Non-compliance attracts a ₹5,000 penalty and renders the agreement inadmissible in Rent Courts (Section 4(6)).
Section 20: The “Force Majeure” Shield
A direct response to the COVID-19 pandemic, the new rules codify Force Majeure. If the premises become uninhabitable due to natural calamities (floods, earthquakes, cyclones) or war, the tenant is granted relief.
Rent Revision & Market Correction
Section 9 of the MTA introduces a standardized protocol for rent revision, eliminating the ambiguity of “arbitrary hikes.”
- 3 MONTHS Notice Period: The landlord must give a written notice 3 months prior to the revised rent becoming due.
- CONSENT Deemed Acceptance: If the tenant does not send a notice of termination within the 3-month period, they are deemed to have accepted the new rent.
- MARKET Capex Pass-through: If the landlord incurs expenditure on structural improvements (with tenant consent), rent can be increased proportionately.
Market Impact Visualization
Codified Eviction & Succession
Arbitrary eviction is barred, but the grounds for repossession are now clearly defined under Section 21 & 22. The “Adverse Possession” fear is neutralized; tenants cannot claim ownership regardless of the tenure length.
Grounds for Repossession
- Refusal to pay rent: If arrears exceed two consecutive months.
- Subletting: Parting with possession without written consent (Section 21(2)(b)).
- Structural Damage: Making permanent alterations without permission.
- Personal Necessity: If the landlord requires the premises for their own occupation (requires 1-month notice).
Succession Rights (Section 13)
Tenancy is now heritable but finite. In the event of a tenant’s death, the tenancy rights devolve to heirs only for the unexpired period of the lease. This prevents the creation of “perpetual tenancies” that plagued cities like Mumbai and Delhi under old regimes.
The Cost of Overstaying: Section 23
The 2025 Rules introduce severe financial penalties for “Holding Over” (staying past lease expiry). This provision is non-negotiable and statutory.
Property Managers: Section 19
Recognizing the rise of NRI landlords and institutional housing, Section 19 formalizes the role of Property Managers.
- ID Mandatory Registration: Property managers must be registered with the Rent Authority. Their name and Tenancy ID must appear on the rental agreement.
- DUTY Liability Shield: While managers handle maintenance and rent collection, legal actions for eviction must still be initiated in the Landlord’s name, unless specific Power of Attorney is granted.
Fiscal Amendments: Finance Act 2025
The legal landscape is linked to fiscal policy. The Union Budget 2025 amended the Income Tax Act to rationalize TDS thresholds.
Section 194-I: The New Threshold
The threshold for TDS deduction by corporate payers or audited individuals has increased from ₹2.4 lakh to ₹6 lakh annually. This translates to a monthly rent of ₹50,000, aligning corporate compliance with individual compliance.
Section 194-IB: Individual Compliance
Salaried individuals paying rent exceeding ₹50,000 per month must deduct TDS at 2%. No TAN is required; the deduction uses the landlord’s PAN.
| Feature | Section 194-I (Corporate/Audit) | Section 194-IB (Individual/HUF) |
|---|---|---|
| Annual Threshold | ₹6,00,000 (New) | N/A |
| Monthly Limit | ₹50,000 | ₹50,000 |
| TDS Rate | 10% | 2% |
| Requirement | TAN Mandatory | PAN Only |
Rent TDS Calculator (FY 2025-26)
Commercial vs. Residential Variances
The 2025 Rules distinguish clearly between usage types, specifically regarding deposit caps.
| Parameter | Residential Premises | Commercial/Industrial |
|---|---|---|
| Security Deposit Cap | Max 2 Months Rent | Max 6 Months Rent |
| Rent Revision Notice | 3 Months Written Notice | As per Contract Terms |
| Jurisdiction | Rent Court | Commercial Courts (if > ₹1Cr value) or Rent Court |
Rights & Obligations Explorer
Duties
- Structural repairs and whitewashing.
- Provide 24-hour written notice before entry.
- Issue signed receipts for all payments.
- Cannot cut essential services (water/electricity).
Rights
- Evict for non-payment (2 months).
- Evict for subletting without consent.
- Double rent penalty for holding over.
Who fixes what? (The Second Schedule)
The most frequent cause of disputes is maintenance. The Second Schedule of the MTA 2021 creates a binding division of labor.
Note: If a landlord fails to perform duties, tenants can deduct repair costs from rent (max 1 month rent per year), after notice.
Interactive Compliance Auditor
Are you compliant with the 2025 Rules? Check all that apply to calculate your compliance score.
The 60-Day Adjudication Promise
Section 40 of the MTA bars Civil Courts from entertaining tenancy suits. The new three-tier system prioritizes speed. The Rent Court is mandated to dispose of eviction matters related to non-payment or misuse within 60 days, and military personnel cases within 30 days.
Note: Appeals must be filed within 30 days of the Rent Court order.
Frequently Asked Questions
Failure to register renders the agreement inadmissible in Rent Court. You also face a fine of ₹5,000. Without a registered agreement, a landlord cannot sue for eviction under the new speedy process.
Generally, substantive rules like deposit caps are prospective, applying to new agreements signed after the notification date. However, upon renewal of an existing lease, the new rules will apply.
Yes. Under the new rules, if a landlord incurs expenditure on improvement or structural alteration (with the tenant’s consent), they can increase the rent one month after the work is completed.
No. For notified jurisdictions, digital stamping is mandatory from July 1, 2025. Physical papers purchased before may be refunded or used for other purposes, but not for new rent agreements.
Compliant Rental Agreement Templates
Use the drafts below as a base for your agreements. These clauses align with the 2025 Rules.
