Deduct TDS on rent if the landlord is an NRI if rent exceeds ₹ 1,80,000/year. File TDS returns online with TAN and make payment through credit/debit card. Avoid penalties and ensure compliance with Indian tax laws.
Introduction
In India, the Tax Deducted at Source (TDS) is a method of tax collection that is enforced by the government. According to the provisions of the Income Tax Act, any person making a payment to a non-resident Indian (NRI) is required to deduct TDS, unless the payment is exempt from TDS.
This applies to rent payments as well. In this blog, we will discuss the rules and procedures for deducting TDS on rent payments if the landlord is an NRI.
Who Can Be Considered as NRI?
An individual of Indian origin or holding Indian citizenship but not residing in India is referred to as a Non-Resident Indian (NRI). Determination of an individual’s residential status is outlined in Section 6, where one is considered a resident of India if meeting any of the following conditions:
- Residing in India for a minimum of 182 days during the preceding year
- Staying in India for at least 60 days in the previous year and a cumulative 365 days in the four immediately preceding years.
Conversely, an NRI is someone who does not fulfil any of the mentioned criteria.
Provisions for TDS When Renting an NRI Property
Tenants renting properties owned by Non-Resident Indians (NRIs) are now obligated to withhold 31.2% tax at source and remit the total sum to tax authorities. Following the payment, tenants must complete Form 15CA and electronically submit it to the income tax department. It’s crucial to note that in such instances, Tax Deducted at Source (TDS) is compulsory on the rent paid, regardless of the amount due.
Which Tax Rates Are Applicable
The rent due must have the 31.2% tax subtracted from it. Unless the NRI landlord possesses a certificate verifying that his overall income from India falls below the exemption threshold, this tax rate will be imposed. If the deductor receives a certificate under Section 197 for lower TDS, they must deduct lower TDS in accordance with the AO’s order.
How to Deduct Tax
- Obtain a Tax Account Number (TAN) through the NSDL website at https://tin.tin.nsdl.com/tan/form49B.html as the initial step
- Once TAN is secured, tenants are mandated to deduct Tax Deducted at Source (TDS) at a rate of 31.2% using Challan ITNS 281, ensuring completion by the seventh day of the subsequent calendar month
- Disburse the remaining rent amount to the Non-Resident Indian (NRI) property owner after withholding TDS
- Following TDS deposit, tenants are required to submit a quarterly TDS Return via Form 27Q
- Issue a TDS certificate in Form 16A by downloading it from the TRACES website within 15 days from the due date of furnishing TDS returns.
When is TDS Applicable on Rent Payments to an NRI?
TDS (Tax Deducted at Source) is applicable on rent payments made to a Non-Residential Indian (NRI) if the rent amount exceeds Rs. 1,80,000 per financial year.
TDS is applicable at the rate of 30% and must be deducted by the tenant or the person responsible for making the payment. The tenant is required to obtain a PAN (Permanent Account Number) of the NRI landlord and file TDS returns, along with paying the TDS amount to the Indian government.
If the NRI landlord does not have a PAN, TDS will be deducted at a higher rate of 20%. It is important for both the tenant and NRI landlord to be aware of TDS regulations to ensure compliance with Indian tax laws.
What are the Exemptions from TDS on Rent Payments to an NRI?
There are certain circumstances under which TDS is not applicable on rent payments to an NRI. These include:
- If the NRI is an Indian company or a foreign company that has a permanent establishment in India.
- If the NRI is a firm or an association of persons.
- If the NRI is the government of a foreign country.
Procedures for deducting TDS on Rent Payments to an NRI
The following steps must be followed when deducting TDS on rent payments to an NRI:
- Obtain PAN (Permanent Account Number) and TAN of the NRI landlord: The tenant must obtain the PAN and TAN of the NRI landlord in order to deduct TDS on rent payments.
- Calculate TDS: The tenant must calculate the TDS on the rent amount based on the rate of 30%.
- Deposit TDS with the government: The tenant must deposit the TDS with the government using the TAN obtained earlier.
- Submit TDS return: The tenant must submit a TDS return to the Income Tax Department within a specified time period.
- Obtain TDS certificate: The tenant must obtain a TDS certificate from the Income Tax Department in order to claim a credit for the TDS deducted and deposited with the government.
How to File TDS Return Online?
Filing TDS returns online is a simple and convenient process. To file TDS returns online, follow the steps below:
- Obtain a TAN (Tax Deduction and Collection Account Number) from the Income Tax Department, if you don’t have one already.
- Log in to the e-filing portal of the Income Tax Department using your TAN and password.
- Choose the option for ‘TDS return’ and select the financial year for which you want to file the return.
- Download the TDS return form and fill it in with the required information, including details about the deductee, amount of tax deducted, and the relevant challan details.
- Verify the form and upload it on the e-filing portal.
- Once the form is uploaded, you will receive an acknowledgement number, which should be kept for future reference.
- Make the payment for the TDS amount using a credit or debit card, or by net banking.
- After the payment is successful, you will receive a confirmation of the TDS return filing.
Note: It is important to file TDS returns on time to avoid penalties and interest charges. TDS returns can be filed quarterly, and the due date is usually the 7th of the following month after the end of the quarter.
Conclusion:-
In conclusion, deducting TDS on rent payments to an NRI is a legal obligation that must be complied with by the tenant. By following the rules and procedures outlined in this blog, the tenant can ensure that TDS is deducted and deposited correctly.
The TDS certificate obtained from the Income Tax Department can then be used to claim a credit for the TDS deducted and deposited with the government. Vakilsearch has well-experienced experts who can assist you with the right procedure for a seamless process.
FAQs
Do NRI pay tax on rental income?
Yes they are required to pay 31.2%
What is 30% TDS for NRI?
The 30% TDS (Tax Deducted at Source) for Non-Resident Indians (NRIs) refers to the rate at which income tax is withheld from certain payments made to NRIs, such as rent.
Can NRI claim TDS exemption?
Yes under the following scenarios:
- If a lower TDS rate is permitted by the DTAA between India and the nation where you currently live
- If your total income is less than the ₹1.6 lakh basic exemption threshold
- If your total income is less than the ₹1.6 lakh basic exemption threshold
What is the TDS deduction on rent?
Rent is subject to TDS (Tax Deducted at Source) when:
What is the maximum TDS limit for rent?
Under Section 194I, the maximum TDS-free sum is ₹2.4 lakhs in a single financial year (starting from the 2019–20 fiscal year).
How to pay TDS on rent above ₹50000?
For tenants in India making rent payments exceeding ₹50,000 annually, TDS must be deducted at a rate of 5%.
Read more:-
- TDS – Deduction on Source Under Section 194J
- Different Types of TDS Deduction
- How to Minimise TDS Amount on Salary?
