TDS on Rent Payment to Non-Resident

According to Section 195 of the Income Tax Act of 1961, an individual living in a house owned by a Non-Resident Indian (NRI) must mandatorily deduct a TDS of 31.2% while paying rent. Upon TDS payment, the tenant needs to submit Form 15CA to the Income Tax Department

Are you a Non-Resident Indian (NRI) who has rented out their property in India? Or perhaps, you are planning to rent a property from an NRI landlord?

If yes, then you must familiarise yourself with specific guidelines for the same. First, you must verify that your landlord has a designated representative in India to address legal or maintenance matters on their behalf.

Second, you must ensure the existence of a comprehensive rental agreement, clearly specifying the terms and conditions of your tenancy. It should encompass details such as monthly rent, security deposit, and other fees or charges involved.

Who is an NRI?

NRI is an Indian citizen but not a resident of the country. Under section 6, we can determine the residential status of an individual. According to this section 6, the following conditions hold for residents: –

During previous years, he/she must have resided in India for at least 182 days.
He/she must have resided in India for 60 days during the previous year and for 365 days during the immediately preceding previous years at least.

What is TDS on rent for NRIs?

TDS stands for Tax Deducted at Source. It is a mechanism used by the Government of India to collect income tax in advance. It involves the deduction of a certain percentage of payments as taxes while making specified payments, such as salary, interest, commission, rent, and other types of income. The person or company responsible for making the payment is known as the ‘deductor’ and the individual receiving the payment is known as the ‘payee’. The deductor deducts the TDS on behalf of the payee, and then, remits the same to the government.

As per Section 195 of the Income Tax Act of 1961, a person or entity paying rent or interest to an NRI or a foreign company must deduct a TDS at the time of making the payments. The TDS amount is withheld by the tenant and remitted to the government on behalf of the NRI landlord. As a tenant, you must ensure that the NRI rent TDS is deducted and deposited as per the prescribed rates and timelines to avoid penalties.

Provisions for TDS While Renting an NRI property

According to Section 195 of the Income Tax Act of 1961, an individual living in a house owned by a Non-Resident Indian (NRI) or a person/entity paying rent or interest to an NRI or a foreign company must mandatorily deduct a TDS of 31.2% while paying rent. Upon TDS payment, the tenant needs to submit Form 15CA to the Income Tax Department

For example, suppose Mr. Nair is an NRI who let out his property to Mr. and Mrs. Jhangir for a monthly rent of Rs. 50,000. As per the NRI rent TDS section, Mr. and Mrs. Jhangir have to deduct 31.2% of the rental amount every month while making rental payments to their landlord.

So, the actual amount that they would pay is Rs. (50,000 – 31.2% of 50,000), i.e., 34,400. The TDS of Rs. 15,600 has to be deposited with the income tax department.

How is Tax Deducted at Source?

Firstly tenants must have a TAN. This TAN stands for the tax account number and this can be received via the NSDL website. As soon as you receive the TAN or the tax account number, the tenant can easily deduct tax each month and pay the remaining amount that needs to be paid to the landlord.

Also, as per rule, the tax must be paid by the 7th of the following calendar month, and for the month of March, TDS must be paid by 30th April.

Exceptions and Exemptions

DTAA Provisions
NRIs can claim the benefits of Double Taxation Avoidance Agreements (DTAA) to reduce their TDS rate. It is a treaty signed between India and different nations to protect NRI taxpayers from paying double taxes on their income in India as well as their residence countries.
Lower or Nil TDS Certificate
An NRI can also obtain a lower TDS certificate from the Income Tax Department of India to reduce their TDS rate. This certificate is provided under section 197 to NRIs whose total income in India is below the tax exemption limit.
Rental Threshold
If the annual rental amount is below a specific threshold, the deduction of TDS is not mandatory, even for NRI landlords. This threshold may vary depending on the changes proposed during the annual budget

Filing Returns for NRI Rental Income TDS

Step 1 – Obtain a TAN number

The person deducting TDS on rent payments to an NRI or PIO is required to obtain a Tax Account Number (TAN) from the official website of the Tax Information Network of the Income Tax Department.

Step 2 – Deduction of the TDS

Once the tenant has obtained their TAN, they can deduct 31.2% TDS for NRI property rent. The TDS amount has to be submitted to the income tax department through TDS returns and the remaining rent can be paid to the NRI property owner.

Step 3 – Fill out Form 15CA

Upon the deduction of the TDS, the tenant must fill out Form 15CA on the income tax website by the 7^th of the subsequent month.

Step 4 – Quarterly TDS returns

Additionally, the tenant needs to file quarterly TDS returns through Form 26Q and issue TDS certificates to the property owner through Form 16A within the next 15 days.

FAQs

What is NRI income tax?

NRI (Non-Resident Indian) income tax refers to the taxes levied on income earned in India by someone who is considered a non-resident for tax purposes. This typically applies to income from Indian assets, investments, or business activities.

Who is considered an NRI for taxation purposes in India?

An individual is considered an NRI if they do not meet the criteria of a resident or ordinarily resident in India under the Income Tax Act. Typically, if an individual has stayed in India for less than 182 days in a financial year, they are considered an NRI.

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