Renting a property from an NRI? What is the mandatory TDS rate you, as a tenant, must deduct from the rent, and why is it so different from the rate for resident landlords? Renting a property from an NRI? What is the mandatory TDS rate you, as a tenant, must deduct from the rent, and why is it so different from the rate for resident landlords?TDS on rent paid to an NRI is governed by Section 195 of the Income Tax Act. And it refers to the tax deducted at source by the tenant before transferring rent to a Non-Resident Indian landlord.
Unlike rent paid to resident landlords, which has a threshold limit and a lower TDS percentage, payments to NRIs have a flat deduction of 30% on the entire rent amount. Tenants must also follow specific compliance steps before remitting rent. In this blog, we will look at the various aspects of TDS on Rent to an NRI.
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Provision for NRI Landlord TDS
It is crucial to understand the provisions for TDS on rent paid to NRI in India to ensure compliance with tax regulations and avoid legal issues. When a tenant pays rent to an NRI landlord, they must deduct tax at source (TDS) at the rate of 31.2%, unless the NRI provides a certificate from the Income Tax Department confirming that their total Indian income falls below the basic exemption limit. This process, also referred to as TDS on rent for NRI or TDS on rent to NRI, allows the government to collect tax on rental income earned by NRIs, with the tenant responsible for deducting and remitting the tax.
The tax on rental income in India is calculated based on the gross rental income of the landlord, with rates depending on the taxpayer’s income slab. While the minimum TDS tax rate is 10%, the NRI TDS rate on rent is fixed at 31.2%, higher than that of residents, ensuring fair tax contribution by NRIs. These provisions apply equally to rental income from residential property, commercial property, or even leased vehicles, with the tenant required to deduct TDS before making payments to the NRI landlord.
Here are the key steps for deducting TDS on rent paid to NRI:
- Obtain a copy of the NRI landlord's PAN card and address.
- Calculate the TDS liability by multiplying the rent payable by 31.2%.
- Deduct the TDS amount from the rent payable and deposit it with the government by the 7th of the following month.
- File a quarterly TDS return in Form 26Q with the Income Tax Department.
- Issue an annual TDS certificate in Form 16A to the NRI landlord.
Following these steps ensures tenants comply with their TDS obligations and NRI landlords contribute their fair share of tax on rental income.
TDS on Rent Payable to NRI Under Section 195
When a tenant pays rent to an NRI, tax must be deducted at source under Section 195 of the Income Tax Act. This is known as TDS on rent payment to NRI. Here are the key points of TDS on rent payable to NRI under section 195:
- The tenant is responsible for deducting and depositing the tax with the government, as NRIs are taxed differently from residents.
- The rate of deduction depends on the type of property, the amount of rent, and whether a lower deduction certificate is obtained from the Income Tax Department.
- Section 195 of the Income Tax Act mandates TDS deduction when paying rent to an NRI. Usually 30% (plus applicable surcharge and cess) on the rent amount, unless a lower TDS certificate is obtained.
- The tenant must file Form 15CA online and obtain a Form 15CB certificate from a Chartered Accountant for remittance.
- TDS must be deposited with the government by the 7th of the following month.
- The tenant must obtain a TAN (Tax Deduction and Collection Account Number) to deduct and pay TDS.
- The deducted TDS can be claimed as a credit by the NRI while filing their Indian income tax return.
- Failure to deduct or deposit TDS can lead to penalties, interest, and disallowance of expenses.
The Rate of TDS on Rent Paid to NRIs
The rate of TDS on rent, particularly when dealing with Non-Resident Indian (NRI) landlords, stands at 31.2%. This rate, often referenced as the NRI TDS rate, is higher than the applicable rates for domestic residents. This disparity is intentional, ensuring that NRIs contribute proportionately to their rental income's tax obligations.
The 31.2% rate applies unless the NRI landlord provides a certificate from the Income Tax Department, indicating that their total income from India is anticipated to fall below the basic exemption limit. In the absence of such certification, the tenant must adhere to the prescribed TDS rate to fulfil their tax obligations and facilitate the seamless flow of rental transactions.
Understanding TDS Forms and Procedures for Rent Paid to NRI
When dealing with TDS on rent paid to NRIs, several forms and procedures need consideration to ensure compliance and avoid penalties:
- Form 13 TDS NRI: This form is crucial for NRIs seeking lower deductions of TDS. It allows a lower deduction of TDS for NRI on rental income by providing details of their projected income.
- Form 15G for PF Withdrawal NRI: While not directly related to rent, this form can be submitted by NRIs to ensure no TDS deduction or a lower deduction on PF withdrawals, minimising the overall tax burden.
- Form 16A for NRI: This form is issued by the deductor (tenant) to the NRI landlord, providing details of TDS deducted on rental income. It serves as proof of TDS deduction for the NRI landlord.
- Form 26AS NRI: NRIs should regularly check their Form 26AS to verify TDS deductions made by tenants and ensure accurate reporting of income while filing tax returns.
- Form 26QB for NRI Seller: While not directly related to TDS on rent, this form is relevant for NRIs selling property in India, as it facilitates TDS deduction and payment on property transactions.
The Procedure of Deducting TDS on Rent Paid to NRIs: A Step-by-Step Guide
When renting a property from a Non-Resident Indian (NRI), the tenant must follow a specific process to deduct and deposit tax at source. As per Section 195 of the Income Tax Act, rent paid to an NRI must be deducted by the tenant before transferring the rent.
- Step 1: Obtain the NRI landlord's PAN card and address: The tenant must obtain a copy of the NRI landlord's PAN card and address. This information can be obtained from the rental agreement or by directly contacting the landlord.
- Step 2: Calculate the TDS liability: The TDS liability is calculated by multiplying the rent payable by 31.2%. For example, if the monthly rent payable is ₹10,000, then the TDS liability would be ₹3,120.
- Step 3: Deduct the TDS amount from the rent payable: The tenant must deduct the TDS amount from the rent payable and pay the remaining amount to the NRI landlord. For example, in the above example, the tenant would deduct ₹3,120 from the ₹10,000 monthly rent and pay ₹6,880 to the landlord.
- Step 4: Deposit the TDS amount with the government: The tenant must deposit the TDS amount with the government by the 7th of the following month. This can be done by using the Challan ITNS 281 form.
- Step 5: File a quarterly TDS return in Form 26Q: The tenant must file a quarterly TDS return in Form 26Q with the Income Tax Department. This return must be filed by the 31st of the month following the end of the quarter.
- Step 6: Issue an annual TDS certificate in Form 16A: The tenant must issue an annual TDS certificate in Form 16A to the NRI landlord. This certificate must be issued by the 31st of May of the following year.
Additional tips for tenants
- It is important to keep a record of all TDS payments made to the government. This record can be used to substantiate the TDS deductions made in the TDS return.
- If the tenant makes a mistake in deducting or depositing TDS, they should rectify the mistake as soon as possible. This can be done by filing an amended TDS return.
TDS on Rent Paid to NRI: Penalties on Non-Payment
The penalty for not paying TDS on rent paid to an NRI is as follows:
- Interest: The tenant will be liable to pay interest on the TDS amount that was not paid on time. The interest rate is 1% per month or part thereof.
- Penalty: The tenant may also be liable to pay a penalty equal to the TDS amount that was not paid.
In addition to the above, the tenant may also be prosecuted under Section 276B of the Income Tax Act, 1961. This section provides for imprisonment for a term of not less than three months and not more than seven years.
To avoid these penalties, it is important for tenants to deduct TDS from the rent paid to NRI landlords and deposit it with the government on time.
Tips for avoiding penalties
- Make sure to deduct TDS from the rent paid to NRI landlords at the correct rate.
- Deposit the TDS amount with the government by the 7th of the following month.
- File the quarterly TDS return in Form 26Q on time.
- Issue the annual TDS certificate in Form 16A to the NRI landlord on time.
How NoBroker NRI Services Can Help?
As an NRI landlord, renting out your property in India can be a great way to generate passive income. However, it can also be a complex process, especially when it comes to complying with Indian tax laws. One of the most important tax obligations for NRI landlords is to deduct tax at source (TDS) from the rent paid by their tenants. The current TDS rate on rent paid to NRI landlords is 31.2%.
If you are an NRI landlord, NoBroker can help you comply with your TDS obligations in a simple and hassle-free way. NoBroker's NRI services can help you with tax compliance. The tax experts at NoBroker can guide you through the process and help avoid any mistakes or mishaps along the way. Additionally, NoBroker's NRI services can also help you with other aspects of property management, such as:
- Finding tenants
- Preparing lease agreements
- Collecting rent
- Carrying out property maintenance
By using NoBroker's NRI services, you can save time and effort and ensure that you are complying with all of your tax obligations.
