Security deposit rules explained: What does the Model Tenancy Act say

While renting a residential property in India, tenants often encounter demands of excessively high upfront payments of security deposits. It carries significant financial risk and puts one in a vulnerable position if the landlord fails to make repairs or faces foreclosure. To ensure and encourage more formal and transparent rental arrangements across India, Model Tenancy act was approved by the Union Cabinet in 2021. However, just because the act is a central model does not mean that it automatically applies throughout India. The laws that are in effect in the State or Union Territory where the property is located will still determine your real legal situation in 2026.The objective is to make the rental market more transparent, efficient, and fair for both landlords and tenants. Beyond capping security deposits, the Act also offers tenants several other meaningful protections. It mandates a written rental agreement for every tenancy, registered with a designated Rent Authority and establishes a structured dispute resolution mechanism. Landlords cannot cut off essential services such as water and electricity to force a tenant out.According to the Act, only two months’ rent can be taken as an advance for residential property, and six months’ rent for commercial property. This ensures that tenants are not forced to commit huge sums at the start of their lease, as is common in numerous metropolitan cities such as Mumbai and Bengaluru.The act also prohibits any arbitrary deductions in repayment of security deposit. Landlords are required to return the deposit within one month of the tenant vacating the premises. Any deductions must be itemised and justified and must cover only legitimate costs such as unpaid rent or documented property damage beyond normal wear and tear. This protects tenants from long wait months for their deposits to be returned, often receiving far less than the original amount without a clear explanation.Since housing is a state subject under the Indian Constitution, the Model Tenancy Act does not serve as a binding national law applicable to all the states and union territories. States and Union Territories must enact their own legislation based on it. So far, adoption has been uneven. Some states have moved to align their rental laws with the model framework, while others continue to operate under older, outdated tenancy legislation. According to the information available with the Ministry of Housing and Urban Affairs, only four states, namely Andhra Pradesh, Tamil Nadu, Uttar Pradesh and Assam, have aligned their tenancy act with the MTA.Regardless of which law applies, tenants should always insist on a written rental agreement that clearly states the deposit amount, conditions for deduction, and the timeline for its return. Photographing the property at move-in and move-out provides useful evidence in disputes.