TDS by Tenant on Rental Property Owned by NRI: 5 Things to Know

If you are an NRI with a property let out on rent in India or a tenant who has rented a property owned by an NRI, you should know all about the TDS applicable in such cases. This post talks about 5 of the most important aspects of TDS applicable to the rent amount on properties owned by NRIs.

Real estate is one of the most popular investment options for NRIs in India. It is very common to come across let out properties in posh localities across the country having NRI landlords. But being an NRI with a property let out on rent, or a tenant living in a property owned by an NRI comes with a few additional responsibilities.

For instance, do you know that tenants living in such properties should deduct TDS from their monthly rent? Do you know that not deducting TDS could also attract a penalty? If you are an NRI landlord or a tenant, here are 5 of the most important things you should know about TDS for NRI-

  1. TDS Provisions While Renting NRI-Owned Property

The TDS deduction rules on the rent paid to NRI landlords were changed in Budget 2017. According to the changes, it is now the responsibility of the tenant to deduct TDS from the rent amount and deposit the same with the tax authorities.

Moreover, unlike the past, the rent amount is no longer a criterion for deciding whether or not TDS should be deducted. Irrespective of the rent amount, the tenant now has to deduct TDS compulsorily.

  1. Applicable TDS Rates

Under Section 195 of the IT Act, the TDS rate in case of let out properties owned by NRIs is 31.2%. This means that the tenant should deduct 31.2% TDS from the rent amount.

However, this TDS rate could be lower if the NRI provides an income certificate to the tax department, which states that his/her income from India is below the exemption limit. In such cases, the Assessing Officer (AO) of the tax department will fix the TDS rate.

  1. TAN for Tenant

Every tax deductor in India is required to have a TAN (Tax Deduction and Collection Account Number). As the tenant will be responsible for deducting the TDS, he/she should also have a TAN. It is a 10-digit alpha-numeric identity used for TDS-related activities.

A tenant can apply for a TAN online. Along with the TAN, it is also mandatory for the tenant to have a PAN (Permanent Account Number) for collecting and depositing TDS. The NRI landlord should also have a PAN.

  1. Form 15CA and 15CB for the Tenant

Tenants generally deposit the rent amount to the landlord’s NRI account in India. But if the rent amount is to be transferred to a foreign country, the tenant then needs to file either Form 15CA or Form 15CB. Form 15CA should be used if the single transaction amount is less than Rs. 50,000 and the annual amount is less than Rs. 2.5 lakhs.

Form 15CB should be used if the single transaction amount is more than Rs. 50,000 and annual transfer is above Rs. 2.5 lakhs. DTAA details can be filled in the forms if the NRI landlord is located in a country with which India has DTAA agreement to make sure that the rent amount is not taxed twice. A Chartered Accountant (CA) can help the tenants file these forms.

  1. Issuing Form 16A and Penalty for Not Deducting or Depositing TDS

Tenants with NRI landlords file TDS returns through Form 27Q within 30 days from the end of every quarter. For instance, TDS returns for January, February, and March should be filed before the following April. Returns filing should be done four times in a year for every quarter. Once the TDS is filed, Form 16A will be generated, which the tenant should give to the NRI landlord.

If the tenant fails to deduct TDS, an interest penalty at the rate of 1% of the TDS amount will be applicable from the month for which the TDS has not been deducted. If the tenant fails to deposit the TDS amount, Rs. 200 penalty per day will be applicable until the TDS is deposited.

Ensuring TDS Compliance as a Tenant or NRI Landlord

If you are a new tenant or NRI landlord, you can look for professional help to ensure TDS compliance. Make sure that you follow the tax guidelines and remember the due dates for depositing TDS and filing returns to avoid penalties.

As for the NRI account for receiving rent, NRIs should consider a reputed bank with an extensive national and international presence.

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