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NRI Income Tax & Compliance

TDS Deduction on NRI-Owned Rental Property

autohr img By Shubham Jain | 03 Jul, 2025
TDS Deduction on NRI-Owned Rental Property

Renting out a property in India is a common practice for NRIs (Non-Resident Indians) to generate income. However, the applicable tax for NRI landlords can significantly vary from that of a normal Indian resident. Many NRIs and their tenants might not be aware of these differences, specifically when it comes to Tax Deducted at Source (TDS) on rental income. Failing to follow these tax regulations can result in a substantial penalty for both parties. In this blog, we will explore TDS on rent paid to NRI-owned properties, applicable tax rates, required forms, penalties for non-compliance, and key exemptions.

Who are NRIs?

A person who is of Indian origin or a citizen of India but not a resident of India will be considered an NRI. The residential status of a person will be determined under Section 6, which will consider the person an Indian resident if he/she fulfills any of these two conditions:

  • If a person has stayed in India for a minimum period of 182 days during a financial year.
  • If he/she has stayed in India for a minimum period of 60 days during a financial year and a minimum of 265 days during four continuous preceding financial years.

An NRI is someone who does not fulfill any of the criteria mentioned above.

Rules for TDS While Renting an NRI Property

As per Section 195 of the Income Tax Act of 1961, these are the provisions for TDS when renting an NRI-owned property:

  • A tenant paying rent for a property owned by an NRI or a foreign company is required to deduct a TDS of 31.2% (comprising 30% tax surcharge and 1% cess) at source and submit the aggregate amount to the tax authorities.
  • Once the payment is made, the tenant must fill out Form 15CA and submit it online to the income tax department. In this case, TDS is necessary on the rent paid regardless of the amount payable.
  • When the value of the payment to be made exceeds Rs 5,00,000, then the tenant needs to submit Form 15CB before submitting Form 15CA, which has to be signed by a CA. This form is required to certify the details of the remittance and applicable tax.

Let's understand this with a simple example. Suppose Mr. Agarwal is an NRI who rented out his property to Mr. and Mrs. Gupta for a monthly rent of Rs 50,000. According to the NRI rent TDS section, Mr. and Mrs. Gupta are required to deduct 31.2% of the rental amount every month when making rental payments to their landlord.

So, the total amount that they need to pay is Rs. (50,000- 31.2% of 50,000), that is, 34,400. The TDS of Rs 15,600 has to be deposited with the income tax department.

Applicable Tax Rates on Rent Paid to NRI-owned Rented Properties.

  • The tax must be deducted from the rent payable at a rate of 31.2%.
  • This tax rate will be applicable until the NRI landlord provides a certificate mentioning that their total income from India is under the exemption limit.
  • According to the order of the AO, a certificate under Section 197 for lower TDS received under Section 197 will need to be for lower TDS.

How is Deduct TDS on Rent Paid to NRI Landlords?

The tenants must have a TAN for the smooth deduction of TDS. TAN stands for Tax Account Number, which can be received through the NSDL website. The tenant can deduct tax each month easily and pay the remaining amount that is required to be paid to the landlord after receiving the TAN or the Tax Account Number.

Additionally, according to the rules, the tax must be paid by the 7th of the following calendar month. For March, TDS must be paid by April 30. Follow these steps to deduct TDS:

  • Obtain a TAN Number: The tenant must first get a TAN (Tax Deduction and Collection Account Number) via the NSDL website. 
  • Deduct and Deposit TDS: Once you have a TAN, deduct 31.2% from the total rent paid to the NRI. Then, pay the deducted amount to the government using Challan ITNS 281 within seven days of the next calendar month.
  • File TDS Return and Issue Certificate: After depositing the TDS, the tenant needs to file a quarterly TDS return using Form 26Q and a TDS certificate to the NRI landlord using Form 16A. You can download this from the TRACES website within 15 days of the return filing due date.

For Example, suppose that Mr.Oberor is an NRI and owns a property in Mumbai. He rents out this property to Mr and Mrs Gupta for a monthly rent of Rs. 8000. When Mr Gupta interacted with Mr. Oberoi to negotiate the rent, he got to know that the latter was an NRI. Once Mr. Gupta started paying the rent, he started deducting 31.2% from the agreed-upon rent and deposited it in his TAN. When they moved into the house, they paid a total of Rs 5,504 to the landlord by deducting Rs 2496 from the rent.

How to File Returns on Payment Mode to An NRI?

The tenant must file a TDS return within a month. This month must be counted from the end of each quarter for the TDS paid on rent to the NRI landlord. For example, you need to file a return by July 31, 2025, for the TDS on rent paid for April, May, and June 2025. Additionally, the tenant must submit a TDS certificate to the landlord using Form 16A within 15 days from the due date for filing a quarterly TDS return.

What are the Penalties for Not Paying TDS?

The tenant must pay the TDS by the seventh of the next calendar month; otherwise, it will initiate legal proceedings under Section 276B of the Income Tax Act, 1961. Below are the applicable penalties:

  • If the tenant fails to deposit the TDS to the government within the specified time duration, it may lead to imprisonment for a period ranging from 3 months to 7 years.
  • According to Section 271C of the Income Tax Act, if the tenant fails or neglects to deduct tax from the rent paid to an NRI landlord, they may attract a penalty that is equal to the TDS amount that should have been deducted.

Key Points for Tax On Rental Income Exemption for NRIs

Here are the cases when the tax on rental income is exempted for NRIs till a specific amount:

  • Certificate of Exemption: Under Section 197 of the Income Tax Act, NRIs can get a certificate of Exemption if their total income from India is under the exemption limit. This certificate allows the NRI to pay lower taxes or potentially be exempt from paying tax on rental income. The application for this needs to be made to the AO (Assessing Officer), who will decide the tax rate or exemption based on the NRI's situation.
  • Filing of Income Tax Return: In case excess TDS has been deducted, the NRI can claim a refund by filing their income tax return in India. They can also report their rental income using this method and claim deductions under Section 24(b) (interest on home loan) and the standard deduction on rental income.
  • Double Tax Avoidance Agreement (DTAA): The DTAA is an agreement between India and other countries aimed at preventing taxpayers from paying tax twice on the same income. As per the rules of this agreement, if an NRI property owner's resident country has a DTAA, then they don't need to pay double tax on rental income from the property situated in India. Apart from relief from double taxation, they may also be eligible for several other benefits, such as special tax rates on income earned in India. Different countries will have different rules within this agreement, and more than 90 countries, including the USA, Canada, the UK, Australia, and Others, have such agreements with India.

How to Apply for a Lower TDS Certificate as an NRI Tenant?

Under Section 197 of the Income Tax Act, an NRI can apply for a lower or nil TDS by getting a certificate that allows tenants to deduct TDS at a reduced rate or a nil rate based on the landlord's total income and tax liability. Follow these steps to apply for a TDS (Tax Deducted at Source) certificate:

  • Collect Required Documents: Gather these documents in advance:
    • NRIs PAN Card
    • Evidence of Income
    • Recent Bank Statements
    • Tax Residency Certificate
    • Details of any investments
    • Property Ownership Documents (If applicable).
  • Provide Form 13: Log in to the e-filing portal of the Income Tax Department.
    • Fill out the Form 13 accurately by entering all necessary details.
    • Attach all the documents mentioned above.
  • Verify the Digital Signature Certificate (DSC): According to current regulations, verification of Form 13 applicants through a Digital Signature Certificate (DSC) is mandatory. The previous verification methods, like Aadhaar OTP or Mobile OTP, are no longer accepted.
  • Reviewing the Application: The AO (Assessing Officer) will verify the application and the supporting documents. They use specialized software to check the appropriate TDS rate, whether lower or nil.
  • Certificate Issuance: If the application is approved, a certificate will be issued stating the reduced TDS rate. It will be valid for one financial year or for a specific transaction.

Points to Remember

  • Tenants need to complete Form 15CA on the income tax portal each time they pay rent.
  • The NRI must mention income from all sources in the ITR along with the TDS from the rental income.
  • If the total value of the rent paid per annum exceeds Rs. 5 lakh, then the tenant must get Form 15CB from a CA.
  • NRIs must file income tax returns by the due date, regardless of the circumstances, even if the income was earned through rent during a particular assessment year.
  • If the interest paid on the housing loan exceeds the rent received during a specific assessment year, it can be adjusted against other income. The "loss" under income from rent on house property can be carried forward for up to eight years, to be set off against income from different sources in the following assessment year.
  • The NRI must receive the rent only in the NRO account. If the tenant is also an NRI and uses their NRE account to make the payment, it can be credited to the NRE account.
  • When the NRI chooses the remittance mode to receive rental income, they must obtain a certificate from a Chartered Accountant (CA) stating that relevant taxes have been paid and there are no other tax liabilities associated.

If you are renting a property in India, it is vital to check if the landlord is an NRI. This way, you can easily deduct TDS from the rent you pay and adhere to the Income Tax Act. Stay updated about any changes in the tax rules and regulations.

Conclusion

The key to avoiding tax complications as an NRI landlord is having proper information and adhering to the rules. You can avoid penalties and legal complications by clearly communicating your NRI status, ensuring that your tenant deducts the correct TDS, and keeping all records carefully. To remain compliant with Indian tax laws, you must seek professional tax guidance from Savetaxs.

At SaveTaxs, we have a team of expert CAs with over 30 years of professional experience as NRI tax experts. They provide guidance and expertise to individuals, ensuring they comply with the TDS rules set by the Income Tax Department. Our team has in-depth knowledge of the rules and regulations. It will provide you with clarity on various aspects of TDS, including TDS applicability, timely filing and deposit of TDS returns, applicable rates, and more. Getting assistance from our experts can help you avoid a substantial penalty. The best thing about choosing Savetaxs is that we are 100% digital and 24*7 available. From filling out the forms to attestation and regular follow-ups, our team handles everything.

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