TDS Deduction on Rental Property Owned by NRI

If you are paying rent to an NRI landlord in India, you may be required to deduct TDS under Section 195 of the Income Tax Act. Unlike rent paid to resident landlords, TDS on rent paid to NRIs applies regardless of the rental amount, and non-compliance may attract penalties and prosecution.

In this guide, we explain the applicable TDS rate on rent paid to NRIs, Section 195 rules, Form 15CA/15CB requirements, lower TDS certificates, penalties, exemptions, and return filing requirements for tenants and NRI property owners.

What is TDS on Rent Paid to NRI?

TDS on rent paid to NRI refers to tax deducted at source under Section 195 when a tenant pays rent to a non-resident Indian property owner. The tenant must deduct TDS at applicable rates before paying rent and deposit it with the Income Tax Department.

Who are NRIs?

A person who is of Indian origin or a citizen of India but does not qualify as a resident under Section 6 of the Income Tax Act is considered an NRI.

A person is treated as a resident if they meet either of the following:

• Stayed in India for 182 days or more during a financial year, OR
• Stayed in India for 60 days in the current year and 365 days during the previous four years.

Anyone who does not meet these criteria is an NRI.

The residential status of an individual directly impacts the applicability of TDS on rental income under Indian tax laws.

Rules for TDS While Renting an NRI Property

Under Section 195, tenants who pay rent to an NRI landlord must deduct TDS at the applicable rates.

✔ The standard TDS rate on rent paid to NRIs generally starts at 31.2% (including cess).

However, a surcharge may apply if the total Indian income exceeds the surcharge thresholds.

High-income NRIs may face a higher effective TDS rate if surcharge becomes applicable based on their total taxable income in India.

✔ Key Rules

• TDS must be deducted regardless of the rent amount (unlike resident landlords).
• After payment, tenants may be required to submit Form 15CA online depending on the remittance requirements.
• If the remittance exceeds prescribed limits, Form 15CB certified by a Chartered Accountant may also be required.

Example:

Rent = ₹50,000/month
TDS = ₹15,600
Landlord receives = ₹34,400

Applicable TDS Rate on Rent Paid to NRIs

• The standard TDS rate generally starts at 31.2%, subject to surcharge applicability.
• Surcharge may apply at higher income slabs.
• A Lower or Nil TDS Certificate under Section 197 may help reduce the applicable TDS rate.

The TDS is generally deducted on the gross rent amount before making payment to the NRI landlord.

How to Deduct TDS on Rent Paid to NRI Landlords

✔ Tenant must obtain a TAN (Tax Deduction and Collection Account Number).

(TAN is compulsory for NRI rent TDS, unlike resident rent TDS under Section 194-IB.)

✔ Steps:

1. Obtain TAN through NSDL.
2. Deduct TDS at the applicable rate and deposit it using Challan ITNS 281.
3. Deposit TDS by the 7th of the following month (for March, the due date is April 30).
4. File Form 27Q (quarterly TDS return for payments made to NRIs).
5. Provide Form 16A (TDS certificate) to the NRI landlord within 15 days after the due date of filing the TDS return.

Example

Rent = ₹8,000/month
TDS = ₹2,496
Landlord receives = ₹5,504

How to File TDS Returns for Payments Made to NRIs

TDS return filing under Section 195 must be completed quarterly using Form 27Q.

• For April–June quarter → Due date is July 31
• For July–September quarter → Due date is October 31
• For October–December quarter → Due date is January 31
• For January–March quarter → Due date is May 31

After filing the TDS return, tenants must issue Form 16A to the NRI landlord within 15 days from the due date of filing Form 27Q.

Penalties for Not Deducting TDS on NRI Rent

If TDS is not deducted or deposited:

Penalties include:

• Section 276B allows prosecution ranging from 3 months to 7 years.
• Section 271C levies a penalty equal to the amount of TDS not deducted.

Key Points for Tax Exemption on Rental Income for NRIs

Here are the situations where NRIs may claim lower tax liability or tax relief on rental income earned in India:

• Lower or Nil TDS Certificate under Section 197: NRIs can apply for a Lower or Nil TDS Certificate under Section 197 if their estimated tax liability in India is lower than the standard TDS rate. Based on the application and supporting documents, the Assessing Officer (AO) may approve a reduced or nil TDS deduction rate.
• Filing of Income Tax Return: If excess TDS has been deducted, NRIs can claim a refund by filing their income tax return in India. They may also claim deductions available under Section 24(b) for home loan interest and standard deduction benefits on rental income.
• DTAA Benefits: The DTAA helps prevent double taxation on the same income. If the NRI’s country of residence has a DTAA with India, they may claim tax relief, foreign tax credits, or reduced tax liability on rental income earned in India.

More than 90 countries, including the USA, Canada, the UK, and Australia, have DTAA agreements with India.

How to Apply for a Lower TDS Certificate (Section 197)

Under Section 197 of the Income Tax Act, an NRI can apply for a Lower or Nil TDS Certificate that allows tenants to deduct TDS at a reduced or nil rate based on the landlord’s estimated income and tax liability.

• Collect Required Documents:
  PAN, income proof, bank statements, TRC, investment details, and property documents.
• Submit Form 13:
  Log in to the income tax e-filing portal, complete Form 13, and upload the required documents.
• Verify Using DSC:
  Digital Signature Certificate (DSC) verification is mandatory for the application.
• Application Review:
  The Assessing Officer reviews the submitted documents and determines the applicable reduced TDS rate.
• Certificate Issuance:
  Once approved, the Lower or Nil TDS Certificate is issued for the relevant financial year.

Important Rules for TDS on Rent Paid to NRIs

• In many cases, tenants may be required to submit Form 15CA while remitting rent payments to an NRI landlord. If the remittance exceeds prescribed limits, Form 15CB certified by a Chartered Accountant may also be required.
• NRIs must report all income in their ITR along with TDS details.
• NRIs must file ITR by the due date, even if income is earned only through rental income.
• If home loan interest exceeds rental income, the resulting loss can generally be carried forward for up to 8 years subject to applicable tax provisions.
• Rental income earned in India is generally credited to the NRO account of the NRI landlord in accordance with FEMA guidelines.
• If rent is paid from an NRE account to another NRE account, proper FEMA and banking documentation should be maintained.
• For remittance purposes, the NRI may need a CA certificate confirming that applicable taxes have been paid.

If you are renting a property in India, it is important to confirm whether the landlord qualifies as an NRI. This helps ensure proper TDS deduction and compliance with the Income Tax Act.

Conclusion

Understanding the rules for TDS on rent paid to NRIs under Section 195 is important for both tenants and NRI property owners to ensure proper tax compliance and avoid penalties.

To avoid legal issues and penalties, NRI landlords should clearly inform tenants about their NRI status. Tenants should deduct TDS correctly, file the required forms on time, and maintain proper documentation.

Savetaxs offers expert NRI tax filing, TDS compliance, form handling, CA certification, and end-to-end assistance for hassle-free tax management.