Rent To NRI

Are you living on a Property owned by Non-Residents? Then this article is helpful for you because you have to comply with some requirements other than just paying rent to NRI Landlord.

Before proceeding with Rent to NRI, let’s understand who is considered a Non-Resident Indian (NRI). NRI is an individual who resided in India for less than 182 days during the year.

Budget 2017 has changed the rules and regulations related to TDS while renting an NRI property. As a tenant paying rent on properties owned by NRIs you are required to deduct tax at source (TDS) and submit it to the tax authorities. In the case of NRI, TDS deduction is mandatory irrespective of the amount of rent.

Tax Rates and the amount applicable

Tax is deducted at the rate in force or current tax rates and presently TDS deducted from the rent payable is at the rate of 30%.  Tax needs to be increased with applicable surcharge and cess depending upon the quantum of rent payable. The maximum rate is 42.744%.

The tax shall be deducted irrespective of the rent amount i.e, whether you pay Rs. 20000 per month rent or Rs. 50000 tax will be deducted.

Let’s take an example to understand it better:

Suppose Mr. A has a residential property in New Delhi and is an NRI and he has lent this property to Mr. X.  Mr. X pays a monthly rent of Rs. 10,000 to Mr. A.

Now, as Mr. A is an NRI Mr. X is liable to deduct TDS and pay the rent after deducting TDS. He will deduct TDS at the rate of 31.20% (Tax plus cess). While paying the rent of Rs. 10000, Mr. X will deduct TDS of Rs. 3120 from the rent and deposit this amount to his tax account online. The remaining amount of Rs. 6880 will be transferred to the landlord.

Also, if NRI doesn’t have taxable income and rental income may not be subject to tax then he can make the application to AO to receive rent without TDS deduction or deduction at a lower rate. If the certificate for no deduction or lower deduction is granted then the tenant shall pay the rent without TDS deductions.

Tax Deduction and Return Filing

Tenants are required to get a Tax Account Number (TAN) first and after the TAN is received, they can deduct TDS every month and pay the remaining amount to the landlord. TDS deducted from the rent paid must be deposited by the 7th of Next month and failing to deposit TDS on time can attract penalties and prosecution. So, it must be deposited in time to avoid any legal compliances. For Example, TDS on rent deducted in July should be deposited by 7th August.

The return shall be filed by the tenant within a month from the end of each quarter i.e., for the rent paid for July, August, and September month TDS return shall be filed by 31st October.

Also, Form 15CA is mandatory for the tenant to fill and submit on Income Tax Portal for the rent paid and if the annual payment exceeds Rs. 5 Lakhs then Form 15 CB must be obtained from a Chartered Accountant by a tenant.

The penalty of TDS to the Tax authorities

  • In case, TDS is not deducted then interest shall be liable at the rate of 1% for every month or part of the month on the tax amount from the date on which such tax was deductible to the date on which such tax is deducted. Penalty may also be leviable under section 271C which would be a sum equal to the tax amount.
  • In case TDS is deducted but not deposited to Government then the interest rate shall be 1.5% for every month or part of the month on the tax amount from the date on which the tax was deducted to the date on which it was paid. Penalty may also be leviable under Section 221 which shall not exceed the arrear tax.

As a tenant, you should be aware of the residential status of your Landlord and should be aware of all the compliances. Also, ensure that the TDS deductions are made as per the Income Tax laws to avoid any violations and penalties.

For more information/clarifications, please contact us at info@taxreturnwala.com