PG Security Deposit in India: Rules, Deductions & Refund Process
Please note: this is general information, not legal advice. Rules differ by state and by the kind of agreement you have. For a specific dispute, speak to a local lawyer.
Security deposit is the most common source of arguments between PG owners and tenants. Almost every dispute comes down to the same thing: the terms were never written down clearly. This guide shows how to avoid that.
What a security deposit is for
A security deposit is money you hold to cover things the tenant might leave behind: unpaid rent or bills, damage beyond normal wear and tear, or missing items. It is not income and it is not extra rent. It belongs to the tenant until it is properly deducted or returned.
How much should you take?
There is no single national rule that fixes the deposit for every PG. Two things are worth knowing:
- The Model Tenancy Act, 2021 is a central model law that suggests a security deposit of no more than two months' rent for residential premises (and up to six months' for non-residential). It is a model: states are not required to adopt it, and housing is a state subject, so the actual rules depend on your state.
- Market practice varies by city and by type of PG. Look at what comparable PGs near you ask, and keep your deposit reasonable. A very high deposit puts good tenants off.
Write the terms down
Your agreement should state, in plain language:
- The deposit amount and the date you received it
- That it is refundable and interest-free (or whatever you have agreed)
- What can be deducted: unpaid rent, unpaid electricity or other agreed charges, and damage beyond normal wear and tear
- The notice period the tenant must give
- How many days after move-out you will return the balance
Our free PG rental agreement generator can help you draft the agreement. Give the tenant a receipt for the deposit the day you take it. The rent receipt generator can help with that too.
What you can reasonably deduct
| Usually reasonable | Usually not reasonable |
|---|---|
| Unpaid rent or agreed charges | Routine painting after normal use |
| Unpaid electricity or other bills | Cleaning that is part of your normal turnover |
| Repair of damage beyond normal wear and tear | Deductions with no bill or photo to back them |
| Replacement of items that are missing | A fixed "penalty" the tenant never agreed to |
A fair move-out process
- Get written notice. Note the date received and the planned move-out date.
- Check the room together. Walk through the room with the tenant on move-out day, and take dated photos. Compare with the photos you took at move-in.
- List the deductions. Write each deduction with its reason and amount. Attach a bill or photo if you can.
- Settle the final month. Deduct only what you have agreed in writing.
- Refund within the agreed time. Pay the balance by bank transfer or UPI, and share a final settlement receipt.
If there is a dispute
Stay calm and keep it on paper. Share your list of deductions and photos, and listen to the tenant's side. Many disagreements end once both people can see the evidence. If it cannot be solved, a written legal notice or your local consumer or civil process may be the next step. That is when to get proper legal advice for your state.
Keep your records
Record every deposit received, deducted and refunded against the tenant's name. With PG management software, the tenant file keeps payments and receipts together, so you can answer a question about a deposit from two years ago in a minute.
Frequently asked questions
Is a PG security deposit always refundable?
Normally yes, minus agreed and justified deductions. The terms should be written in your agreement.
Can I charge interest on a deposit or pay interest to the tenant?
That is a matter of your agreement. State clearly whether the deposit is interest-free.
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