Photo: iStock
Photo: iStock

If landlord is NRI, TDS is mandatorily deducted, irrespective of rent amount

  • Tenants paying rent on properties owned by NRIs are required to deduct TDS at the rate of 30% before making a payment to the NRI
  • The gains on sale of a property are considered as long-term capital gains if the property has been held for more than two years

I am a citizen of Australia with Indian descent. Four siblings will share the proceeds of sale of inherited family home in India. I want to repatriate my share to Australia. Do I have to pay tax on my share I receive in India? If so, then how much? Can I opt to pay tax in Australia instead?

—Muralidhara Sharma

Tax shall have to be paid in India on sale of a property situated in India. You shall be taxable for the portion of capital gains that belongs to you. The gains on sale of a property are considered as long-term capital gains if the property has been held for more than two years and short-term capital gains if it has been held for two years or less. In your case, we are assuming the property has been held for more than two years. To calculate the period of holding, remember to include the period for which the previous owner held the property. Long-term capital gains can be calculated by reducing the indexed cost of acquisition from the sale price of the property. The indexed cost of acquisition can be calculated by multiplying the original cost of the property by the CII (cost inflation index) of the year of sale and dividing it by the CII of the year of purchase. If the property was purchased before 1 April 2001, you can use the CII of FY 2001-02. You are allowed to reduce the cost of improvements made by indexing them in a similar manner.

You can claim exemption from paying tax on your capital gains by opting for one of the following. You may choose to invest your share of capital gains in another property situated in India or you may choose to invest the capital gains in capital gains bonds. If you are not able to suitably invest the capital gains before the due date of filing of income tax return for the financial year in which the property is sold, you may deposit them in Capital Gains Account Scheme and invest them later as per the conditions.

Since you are a resident in Australia for tax purposes, you may have to report this transaction in your Australian tax return as well. To avoid paying tax on this transaction twice, you may refer to the Double Tax Avoidance Agreement between the two countries.

My son stays in Dubai and is a non-resident Indian (NRI). I have rented his flat in Mulund. The tenant is cutting tax deducted at source (TDS) at 31.2% from rent. Is there any way to ensure that this TDS is not cut?

—Mukesh Thakkar

Tenants paying rent on properties owned by NRIs are required to deduct TDS at the rate of 30% (additional cess and surcharge as applicable) before making a payment to the NRI. Upon payment, your tenant will fill in Form 15CA and submit it online to the income tax department. This TDS will reflect in your son’s Form 26AS. TDS deduction is mandatory on the rent paid, irrespective of the amount payable as rent. In case your son’s total income is below the taxable limit in India, you may approach the assessing officer to issue a certificate to you for lower or nil rate of TDS. You can submit this certificate to the tenant so that TDS is deducted accordingly.

Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at mintmoney@livemint.com

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