In India, taxpayers are required to deduct tax at source (TDS) on the rent they pay to their landlords in specific cases. The deducted tax is then deposited to the landlord’s PAN, and a form is provided to the landlord detailing the amount deducted and rent paid. For Non-Resident Indians (NRIs) who own rental properties in India, these rules also apply. So, does this extend to properties owned by NRIs? Let’s explore.
Who Qualifies as an NRI?
An NRI (Non-Resident Indian) is someone who is of Indian origin or holds Indian citizenship but does not reside in India for tax purposes. As per Section 6 of the Income Tax Act, a person is considered a resident of India if they meet one of the following conditions:
- They have stayed in India for at least 182 days during the previous year.
- They have stayed in India for 60 days in the previous year and a total of 365 days over the preceding four years.
If neither of these conditions is met, the individual is considered an NRI.
TDS on Rent Paid to NRIs
With changes introduced in Budget 2017, tenants who pay rent for properties owned by NRIs must deduct TDS at a rate of 31.2% from the total rent. This tax must be deposited with the tax authorities using Form 15CA, which can be submitted online through the income tax portal. Regardless of the rental amount, the TDS requirement applies when dealing with NRI property owners.
If the remittance exceeds Rs. 500,000, tenants must also submit Form 15CB, certified by a Chartered Accountant, before filing Form 15CA. This ensures all necessary tax obligations are met.
Applicable Tax Rates
Tenants are required to deduct tax at 31.2% unless the NRI property owner has obtained a certificate under Section 197 indicating lower tax liability due to their total income being below the exemption limit. In such cases, tenants should deduct the TDS at the reduced rate specified by the Assessing Officer (AO).
Steps to Deduct Tax
Tenants renting property from NRIs must first obtain a Tax Deduction and Collection Account Number (TAN) via the NSDL website. After obtaining the TAN, the tenant should deduct 31.2% TDS from the rent and submit the payment through Challan ITNS 281 by the 7th of the following month. The remainder of the rent can be transferred to the NRI landlord.
Additionally, the tenant must file a quarterly TDS return using Form 27Q and issue a TDS certificate in Form 16A within 15 days of the due date for the TDS return.
Filing TDS Returns
Tenants are required to file TDS returns within one month after the end of each quarter. For example, TDS returns for April, May, and June 2024 must be filed by July 31, 2024. Additionally, the tenant must provide Form 16A to the NRI landlord within 15 days of the due date for filing quarterly returns.
Penalties for Non-Compliance
Failure to pay TDS on time can lead to prosecution under Section 276B of the Income Tax Act, which may result in imprisonment ranging from three months to seven years. If the tenant does not deduct TDS, a penalty equal to the unpaid TDS may also be imposed under Section 271C.
Other Important Information
- Form 15CA must be filed every time rent is paid to an NRI landlord.
- If the annual rent exceeds Rs. 5 lakh, Form 15CB, certified by a Chartered Accountant, is also required.
- If an NRI’s rental income is less than the interest on a home loan, the loss can be set off against other income and carried forward for up to eight years.
- NRIs must file income tax returns in India regardless of rental income, and the rent should be credited to their NRO account. If the payer is also an NRI, the rent can be deposited into an NRE account if they use their NRE account for payment.
- NRIs opting for remittance of rental income must obtain a certificate from a Chartered Accountant confirming that all relevant taxes have been paid.
Key Tax Exemptions on Rental Income for NRIs
- Certificate of Exemption: If an NRI obtains a certificate under Section 197 indicating their income is below the exemption limit, they can pay a lower tax on rental income.
- Double Tax Avoidance Agreement (DTAA): If the NRI resides in a country that has a DTAA with India, they can avoid paying double tax on the rental income. Over 90 countries, including the USA, UK, and Canada, have this agreement with India.
In conclusion, tenants must ensure they comply with the TDS regulations when renting property from NRIs. Proper deductions, filings, and payments help both the tenant and landlord adhere to Indian tax laws, preventing any legal or financial penalties.
FAQs related to TDS Deduction on Rental Property Owned by NRIs:
1. Is TDS applicable on rent paid to an NRI landlord?
Yes, TDS is applicable on rent paid to an NRI landlord. Tenants must deduct 31.2% tax at source (TDS) from the rent and deposit it with the tax authorities.
2. What is the TDS rate on rent paid to an NRI?
The TDS rate on rent paid to an NRI is 31.2%. However, if the NRI landlord has obtained a lower TDS certificate under Section 197, a reduced rate may apply.
3. How do I deduct TDS on rent paid to an NRI?
To deduct TDS on rent paid to an NRI, tenants must:
- Obtain a Tax Deduction and Collection Account Number (TAN).
- Deduct TDS at 31.2%.
- Deposit the TDS using Challan ITNS 281 by the 7th of the following month.
- File a quarterly TDS return in Form 27Q.
- Issue a TDS certificate in Form 16A to the NRI landlord.
4. Do I need to file any forms when paying rent to an NRI?
Yes, tenants must file Form 15CA online for every rent payment made to an NRI. If the total remittance exceeds Rs. 5 lakh per annum, tenants must also obtain Form 15CB certified by a Chartered Accountant.
5. What happens if I fail to deduct TDS on rent paid to an NRI?
If a tenant fails to deduct TDS on rent paid to an NRI, they may face a penalty equal to the unpaid TDS under Section 271C of the Income Tax Act. Additionally, there could be legal consequences, including prosecution under Section 276B.
6. Can NRIs claim exemptions on rental income in India?
Yes, NRIs can claim exemptions on rental income if they have a certificate under Section 197 stating their income is below the exemption limit. They can also benefit from the Double Tax Avoidance Agreement (DTAA) if they reside in a country that has this agreement with India.
7. What if I overpay TDS on rent to an NRI?
If excess TDS is deducted, NRIs can claim a refund by filing an income tax return in India. The refund will be processed based on the deductions and income reported.
8. Do NRIs need to file income tax returns for rental income in India?
Yes, NRIs must file income tax returns in India, even if the rental income is below the taxable threshold. This helps them report their income and claim any applicable deductions or refunds.
9. What is the penalty for late payment of TDS on rent paid to an NRI?
If TDS is not paid on time, the tenant may face a penalty under Section 276B of the Income Tax Act, which can lead to imprisonment ranging from three months to seven years.
10. Can rental income be deposited into an NRI’s NRE account?
No, rental income should be credited to the NRO account of the NRI. However, if the payer is also an NRI using an NRE account for payment, it can be credited to the NRE account.
