Onus on tenant to cut TDS for NRI payments

I am a non-resident Indian (NRI), and am earning ₹2.5 lakh every year as rental income from my property in India. I had requested my tenant to deduct and deposit tax deducted at source (TDS) on the rent. But this did not happen due to the complexities of understanding the nature of depositing TDS. I declare my rental and all other sources of income in India in ITR-2 returns, and am paying taxes honestly. Is this arrangement fine, or should I myself cut the 30% TDS every month on behalf of my tenant, and claim it while filing tax returns?

—Name withheld on request

According to the Income Tax Act, tenants must deduct TDS at 31.2% on rent paid to an NRI, and deposit the tax with the government. There is no minimum threshold for deduction of TDS on rent paid to NRIs. The tax must be deducted from the rent payable at the rate of 31.2%. However, if as a landlord, your total income is below the taxable limit, you can apply for a certificate under Section 197 for lower TDS deduction. A certificate under Section 197 for lower TDS would require the deductor, i.e. the tenant, to deduct lower TDS as per the order of the AO. Note that if the tenant fails to deduct tax from the rent paid to an NRI landlord, there may be a penalty equal to the tax not deducted as per Section 271C of the Income Tax Act. To comply with the Act, tenants must get a tax account number (TAN) via the NSDL website.

Once the TAN is received, he/she can deduct tax every month and pay the remaining to the landlord. TDS from rent paid in a calendar month must be paid by the seventh of the following calendar month. Not depositing TDS in time comes with penal consequences.

It is not possible for the landlord to deduct TDS under the given situation; the onus of this compliance rests on the tenant. But it is your responsibility to ensure that your taxable income in India has been duly reported in your I-T return to be filed in India.

Archit Gupta is founder and chief executive officer, ClearTax.