TDS Deduction on Rental Property Owned by NRI

Indian taxpayers must deduct tax on the rent they pay to their landlords in certain circumstances, deposit to the PAN, and provide a form to the landlord stating the tax deducted and the rent paid. Non-resident Indians (NRIs) invest in properties in India and let them for rent. Does this rule apply to rent paid for properties owned by NRIs?

Who are NRIs?

An individual who is of Indian origin or a citizen of India but not a resident of India is known as an NRI. The residential status of an individual will be determined under Section 6. According to the section, an individual is a resident of India if he satisfies any of the following conditions:

• If he has resided in India for a minimum period of 182 days during the previous year.
• If he has resided in India for a minimum period of 60 days during the previous year and a minimum of 365 days during four immediately preceding previous years.

In this regard, an NRI is one who does not satisfy any of the above criteria.

TDS when Renting an NRI Property

Budget 2017 changed the rules for tax deduction at source on rent paid in India. Tenants paying rent on properties owned by NRIs are required to deduct 31.2% tax at source and submit the aggregate amount to the tax authorities. Upon payment, the tenant must fill in Form 15CA and submit it online to the income tax department. In this case, TDS is mandatory on the rent paid irrespective of the amount payable.

In certain scenarios like, the value of the remittances to be made in excess of Rs. 500,000, then the tenant must also submit Form 15CB before submitting Form 15CA. This form certifies the details of the remittance and applicable tax.

Tax Rates Applicable

The tax must be deducted from the rent payable at the rate of 31.2%. This tax rate is applicable unless the NRI landlord has a certificate stating that his total income from India is below the exemption limit. A certificate under Section 197 for lower TDS received under Section 197 would require the deductor to deduct lower TDS as per the order of the AO.

How to Deduct Tax

First of all, tenants must get a tax account number (TAN) via the NSDL website at https://tin.tin.nsdl.com/tan/form49B.html. Once the TAN number is issued, the tenant is required to deduct TDS at 31.2%  through Challan ITNS 281 within the seventh of the following calendar month. The rest of the rent amount should be paid to the NRI property owner.

After the TDS is deposited, the tenant should furnish a quarterly TDS Return in Form 27Q. The tenant must also issue a TDS certificate in Form 16A by downloading it from the TRACES website within 15 days due date of furnishing TDS returns.

Example for NRI Owned Rental Property

Consider that Mr N is an NRI and owns a residential property on the outskirts of New Delhi. He has let out the property to Mr and Mrs Sharma for a monthly rent of Rs.8,000. When Mr. Sharma interacted with Mr N to negotiate the rent, he got to know that the latter was an NRI.

Once Mr Sharma started paying rent, he started deducting 31.2% from the agreed-upon rent and deposited it in his TAN. Mr Sharma’s family moved into the house in the month of June 2019.

When he paid the rent for the month of June 2019 on 1 July 2019, he deducted Rs.2,496 from the rent and deposited this amount within 7 August 2019 to his tax account online. The remaining sum of Rs.5,504 is transferred to the landlord’s account via electronic transfer.

How to File Returns

Tenants must file returns within a month from the end of each quarter for the TDS paid on rent to an NRI landlord. For example, you must file returns by 31 July 2024 for the TDS on rent paid for April, May, and June 2024.

Alongside, the tenant must provide a TDS certificate by means of Form 16A to the landlord within a period of 15 days from the due date for filing a quarterly TDS return.

Penalty for Not Paying TDS

The TDS deducted from the rent paid must be paid by the seventh of the following calendar month. If the tenant does not pay the TDS on time, it attracts prosecution under Section 276B of the Income Tax Act, 1961. That is, it may lead to imprisonment ranging from three months up to seven years.

When a tenant fails to deduct tax from the rent paid to an NRI landlord, the tenant may also attract a penalty equal to the TDS amount as per Section 271C of the Income Tax Act.

Other Information

• It is mandatory for tenants to fill out Form 15CA on the income tax portal every time rent is paid.
• If the total rent paid per annum exceeds Rs.5 lakh, the tenant must obtain Form 15CB from a Chartered Accountant.
• If the interest paid on the housing loan exceeds the rent received during a specific assessment year, it can be set off against income from other sources. The ‘loss’ under income from rent on house property can be carried forward for up to eight years, to be adjusted against income from various sources in the following assessment years.
• NRIs should file income tax returns within the due date, regardless of whether income has been earned from rent during a specific assessment year.
• The rent earned by the NRI should be credited only to the NRO account. If the payer is also an NRI who is using his/her NRE account to make the payment, it can be credited to the NRE account.
• When the NRI opts for the remittance mode to receive the rental income, he/she should get a certificate from a Chartered Accountant stating that relevant taxes have been paid and that there is no further tax liability associated.
• The NRI must provide income from all sources in the ITR along with TDS from the rental income. 

When you take a house for rent, it is your responsibility to find out if the landlord is an NRI. This makes it easy for you to deduct TDS on the rent paid and adhere to the Income Tax Act. Keep track of any amendments to the tax rules.

Key Points for Tax on Rental Income for NRIs

Below are the cases where tax on rental income is exempted for NRIs for a specific amount:

• When NRIs have a ‘Certificate of Exemption’: The tax on rental income can be exempted when the NRI property owner has a certificate stating that the total income from India is below the exemption limit. When the NRI owner has this certificate under Section 197, the taxpayer will have to pay lower tax on rental income as per the order of the AO.
• When they fall under the Double Tax Avoidance Agreement (DTAA): Some countries in the world have the Double Tax Avoidance Agreement with India. As per the terms and conditions of this agreement, if the NRI property owner’s country of residence has a DTAA, they need not pay double tax on rental income from the property located in India. More than 90 countries, including the USA, Canada, UK, Australia, and more throughout the world, have this agreement.
• Filing of income tax return: NRIs must file their income tax return in India to report the rental income and claim a refund if excess TDS has been deducted. They can claim deductions available under Section 24(b) (interest on home loan) and standard deduction on rental income.