TDS on the rent paid to NRI
Summary:
When you rent a property from an NRI landlord in India, you are required to deduct TDS on the rent you pay. The TDS rate for rental income of an NRI is 31.2%(As per Section 195 of Income Tax Act, 1961). You can deduct TDS by filing Form 16A with the Income Tax Department. You must deduct TDS as applicable, no matter the rent is paid via cash, cheque or any other mode to the NRI landlord.
Understanding:
Anyone who pays rent must know the requirements if the landlord is an NRI. Simply paying rent on time may not be enough to comply with Indian income tax laws. You must also identify if your landlord qualifies as an NRI. There are many other obligations that you must fulfil, and failure to comply can result in monetary and legal consequences.
Under the income tax laws, a tenant is required to deduct the tax at the time of paying rent. The tax must be deducted irrespective of monthly rent amount. This means that whether you are paying Rs 15,000 per month as rent or Rs 50,000, tax must be deducted before making the rent payment.
Example:
A tenant paying rent of Rs 50,000 per month to an NRI landlord who falls in the bracket of the maximum tax rate of 30%, will be responsible to deduct tax at source amounting to Rs 21,372 (Rs 50,000 x 42.744% which is 30% tax increased by highest surcharge rate and cess) per month before making the payment of such rent. If the surcharge is not applicable to the NRI landlord (due to income being below the threshold), he should intimate to the tenant to deduct tax at the appropriate tax rates i.e. (30%+4% cess).
Can the taxes be deducted at lower rate?
The Income-tax Act allows both tenant and landlord to make an application seeking lower or nil TDS. If the tenant believes that entire rental income or part of the income may not be subject to tax in the hands of the NRI landlord, he/she may make an application in the prescribed form and manner to his Assessing Officer (AO), to determine the appropriate proportion of income which is taxable and shall deduct the tax only on that proportion of the income.
Similarly, the NRI landlord may make an application in the prescribed form to his AO for the grant of a certificate authorising him to receive rental income without deduction of tax or at a lower rate. If such certificate is granted, tenant shall pay the rent without deducting the taxes or deducting the taxes at the lower rate. The certificate granted shall be valid till the date specified therein or if it is cancelled by the AO before the expiry of such period, till such cancellation.
How to deduct TDS:
Obtain a TAN number
A TAN number is a tax deduction and collection account number that is required for deducting TDS on rent payments. You can apply for a TAN number online at the NSDL website.
The rental cost must be paid to the NRI landlord’s NRO (Non-Resident Ordinary) account. An NRO account is a designated bank account tailored for NRIs to manage their Indian income, such as rent, dividends, and pensions
Issuing a TDS certificate
Within 15 days of the end of each quarter, you must issue a TDS certificate to the NRI landlord in Form 16A. This certificate will be used by the landlord to file income tax returns.
Paying the Rent on Time
This is probably the most important responsibility of a tenant. If you don’t pay your rent on time, you may be evicted from the property.
Taking care of the property
You are responsible for keeping the property in good condition and making any necessary repairs. You should also report any maintenance issues to the landlord promptly. You are responsible for any damage that you cause to the property. This includes damage to the walls, furniture, appliances, etc.
Rental Agreement
The rental agreement is a legally-binding contract between a tenant and a landlord. You must make sure that you follow all of the terms of the agreement. It is advisable to have all the terms and conditions incorporated in the agreement to avoid any dispute later.
For any more queries:
Contact – anshul@karwaandassociates.com