Non-resident Indians (NRIs) commonly invest in real estate in India, and rent it out. If your landlord happens to be an NRI, make sure you deduct tax at source (TDS) each month from the rental payment.
TDS needs to be 31.2% of the rent, unless the NRI landlord furnishes a certificate stating that his total income in India is estimated to fall below the tax exemption limit. There is no lower limit for TDS deduction. For example, even if the rent is ₹5,000 per month, the tenant will have to deduct TDS.
Remember that it is the tenant’s duty to ascertain if the landlord is an NRI.
How to deduct TDS
The tenant first needs to obtain a tax deduction account number (TAN). This can be done online through the NSDL website. Once the TAN number is issued, the tenant can deduct tax every month and pay it online. For example, in case the rent is ₹5,000, the tenant will have to deduct ₹1,570 per month (31.2% of ₹5,000). The balance can be paid to the landlord.
TDS needs to be paid by the tenant by the seventh of each calendar month, following the month in which tax is deducted. For example, if you pay rent and deduct tax on 5 June, TDS must be deposited with the government by 7 July. It is important that you pay TDS that you have deducted from the rent, well in time. Failure to do so can attract prosecution under Section 276B of the Income-tax Act, 1961, leading to imprisonment of three months to seven years.
Remember that failing to deduct TDS from an NRI landlord can also attract a penalty equal to tax not deducted under Section 271C of the Act, but not prosecution.
How to file returns
The tenant also needs to file a tax return for TDS paid on rent paid to an NRI landlord within a month of the end of each quarter. For example, for the April-June quarter, the TDS return has to be filed by 31 July. However, for the January-March quarter, the return can be filed by 31 May.
The tenant needs to issue a TDS certificate in Form 16A to the landlord within 15 days from the due date for filing quarterly eTDS return.
It is mandatory for the tenant to fill in Form 15CA online on the income tax portal while paying rent each time. If the annual rent payment is more than ₹5 lakh, the tenant needs to obtain Form 15CB from a chartered accountant.