TDS on rented property owned by NRI

Are you paying rent to an NRI for any property? If so, then you may need to do more than just deposit rent regularly into your NRI landlord’s bank account.

According to the income tax act under section 195, taxpayers including individuals, companies, etc. paying rent to an NRI must deduct TDS (taxes deducted at source) before making a payment.

Tax on Rental Income for NRIs

Tenants paying rent on NRI-owned properties must deduct 31.2% at source. Upon payment, the tenant must fill in Form 15CA and submit it online to the ITD.

  • The tax must be deducted irrespective of the monthly rent amount whether it’s ₹5,000 or ₹5,00,000.
  • TDS is applicable irrespective of whether the rent is paid via cash, cheque, or any other mode to the landlord.

Actions to be taken by tenants to file returns of rental income of NRIs

  1. Get the TAN number: The tenant living in a house owned by an NRI is mandatorily required to apply for a TAN from the e-Filing portal.
  2. Tax deducted at the source: Once the TAN number is issued, the tenant is required to deduct TDS at 31.2% and submit a challan within the 7th date of the subsequent month to remain compliant with the provisions of the ITD. And the rest of the amount of rent is to be paid to the property owner (NRI).
  3. File online TDS return: Once TDS is deposited, the tenant is required to furnish a quarterly TDS Return in Form 27Q.
  4. Issue of TDS certificate to the NRI: The tenant is also required to issue a TDS certificate by downloading it from the TRACES website.

If the total rent paid per annum exceeds Rs.5 lakh, then the tenant must obtain Form 15CB from a Chartered Accountant.

When can the tax on rental income be deducted at a lower rate?

If they hold a Certificate of Exemption: If the NRI property owner has a certificate stating that his total income from India is less than the exemption limit, the tax on rental income can be exempted. With this Section 197 certificate, the taxpayer will be required to pay lower tax on rental income in accordance with the AO’s order.

It means the eligible amount of income that is taxable shall deduct the tax only on that proportion of the income.

Penalty for non-deducting TDS

If the tenant has missed deducting TDS then it would attract interest under section 201 (1A) of the income tax act. It would be 1% for every month or part of a month on the amount of taxes from the date on which such tax was deductible to the date on which such tax is deducted.

In case of non-payment / late payment of TDS, Interest shall be levied at 1.5% for every month or part of the month from the date on which TDS was deducted till the date on which TDS was actually credited to ITD.