Section 195 | TDS on Rent Paid to NRI

Overview

NRI owned the property in India in order to get rental income. The TDS on rent paid on the property is deducted by a resident taxpayer to the NRI landlord. Under Section 195 of the Income Tax Act, 1961, TDS @ 31.2% is deducted on the rent paid to NRI. The tenant also needs to comply with FEMA regulations for rent paid in the foreign currency. In this article, we will provide you with complete insights into how to deduct and deposit the TDS on rent paid to NRI.

What is Section 195-TDS on Rent Paid to NRIs?

As per the Section 195 of Income Tax Act 1961, any person responsible for paying rent to a non-resident landlord, not being a company or foreign company, at the time of credit or the payment, whichever is earlier, has to deduct TDS. The TDS deducted needs to be deposited monthly deductee needs to file return quarterly.

What is NRI?

The NRI (non-resident Indian) is defined under Section 6(1) of the Income Tax Act:

• a person who has not resided for a minimum period of 182 days in the previous year, or
• 60 days or more in the previous year & 365 days or more during the 4 years immediately preceding the previous year.

Therefore, TDS on rent is deducted by the person who pays rent to NRI landlord by cash or any other mode of payment at the rate of 31.2%.

Threshold Limit u/s 195 TDS On Rent Payment to NRI

Under Section 195 of the Income Tax Act, the threshold limit for rent paid is not limited to any particular amount. Therefore, the threshold limit is considered nil and TDS is deducted at any amount on rent paid.

TDS rates and calculation under Rent Paid to NRI

The TDS rate is deducted at the rate of 31.2% (30% + 4% health and education cess). The deducted TDS must be deposited to the government on or before the stipulated time through Challan ITNS 281 within the 7th of the following calendar month.

Example for TDS On Rent Paid to NRI

Mr. Deepak is an NRI who owns a residential property in Bangalore. He has rented out the property to Mr. and Mrs. Gupta for a monthly rent of ₹12,000. During the rental negotiation, Mr. Gupta learned that Mr. Deepak was an NRI.

Once Mr. Gupta began paying rent, he started deducting 31.2% from the agreed-upon rent and deposited it under his TAN. Mr. Gupta’s family moved into the house in the month of January 2024.

When he paid the rent for January 2024 on 1 February 2024, he deducted ₹3,744 from the rent and deposited this amount by 7 March 2024 to his tax account online. The remaining sum of ₹8,256 was transferred to the NRI landlord’s account.

Procedures for TDS filing under Rent Paid to NRI

Here are the procedures for TDS filing under rent paid to NRI:

1. Step 1: Obtain PAN and TAN: For filing the TDS under rent paid to NRI, it is required to obtain the PAN of the landlord. Providing the landlord and tenant's PAN is essential for filing the TDS at the standard rate of 31.2%.
   
   If either landlord, tenant, or both fail to provide PAN during the TDS filing, still the TDS must be deducted at 31.2%, remit to the government, and file the TDS return with PANNOTAVBL. (If you do not know the PAN details of the deductee, 'PANNOTAVBL' may be entered in the PAN of the deductee field. TDS rate may be charged according to the provisions of the Income-tax Act, 1961).
   
   On the other hand, TAN is also essential for the tenant. This is because without obtaining the TAN number, a tenant will be unable to process the TDS filing.
2. Step 2: Calculate TDS: After having the above-mentioned requisites, the next step is to calculate the TDS. The TDS rate will deduct at the rate of 31.2% on the rent payable to the NRI landlord.
3. Step 3: Time to Deposit TDS: After deducting the TDS before payment of the rent to the NRI landlord, the next step is to deposit the deducted TDS to the government by deductee. By using Challan ITNS 281, a renter can deposit the TDS by the 7th of the following month.
4. Step 4: File Forms 15CA and 15CB
   
   Form 15CA: Upon payment to tax authorities, the tenant must fill out the form 15CA online for the declaration of the remittance to the Income Tax Department.
   
   Form 15CB: In certain cases, if the remittance exceeds Rs. 5 lakh, then this form must be submitted by the tenant along with Form A before submitting Form 15CA.
5. Step 5: Quarterly TDS: After the TDS is deposited with the government, the tenant must furnish a quarterly TDS return in Form 27Q.
6. Step 6: Issue TDS certificate: After filing the quarterly TDS return, the next step is to issue the TDS certificate to the NRI landlord in Form 16A, which can be easily downloaded from the TRACES website within 15 days from the due date of furnishing returns.

Penalties under TDS on Rent Paid to NRI

Here are the penalties and fines under TDS on rent paid to NRI:

• The TDS deducted from the rent must be deposited by the 7th of the next calendar month. If the tenant fails to deposit the TDS on time, they face prosecution under Section 276B of the Income Tax Act of 1961. That is, it may result in imprisonment ranging from three months up to seven years.
• When a tenant fails to deduct tax from rent paid to an NRI landlord, the tenant may face a penalty equal to the TDS amount under Section 271C of the Income Tax Act.

Tax on Rental Income Exemption for NRI

Here are the income exemptions that are made on tax on rent for NRI:

• Certificate of Exemption: The tax on rental income can be eliminated if the NRI property owner possesses a certificate declaring that their total income from India is less than the exemption level. When an NRI owner possesses this certificate under Section 197, the taxpayer must pay a lower tax rate on rental income, according to the AO's order.
• Double Tax Avoidance Agreement (DTAA): As per the terms and conditions of the applicant, if an NRI property owner's has a DTAA certificate, they need not to pay double tax for rental income from the property that is located in India. More than 90 countries throughout the world have this agreement with India.
• Filing of income tax returns: 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.

Why Choose Bizfoc as a TDS Consultant?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS for the purchase of property. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations.
• Prescribe forms as per the necessity.
• Helps in accurate computations for TDS computations and returns.
• Tailored advice and guidelines for TDS filing.

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

Whenever Indian residents paying rent to NRI need to deduct and deposit with the tax authorities. The deductee may also need to comply with FEMA regulations by filing Form 15CA and Form 15CB. Deducting and filing TDS on the rent paid to NRI by an individual himself can be cumbersome. So, it is advisable to get the TDS filed with the help of CA professionals and experts to get ease in filing TDS.

Frequently Asked Questions