In this article, we will explain what TDS is, how it works, and its rates.

What are TDS on rent for NRI Tenants and Landlords

Suppose you are a Non-resident Indian (NRI) renting a house in India. In that case, you are subject to taxation and TDS, which is required to be deducted under the Indian income tax laws. In this article, we will explain what TDS is, how it works, and its rates. We will also discuss what will come into play when an NRI rents out a house or a property that they own in India and how they can claim a TDS refund.

What is TDS on rent for NRI?

The Tax Deducted at Source on rent applies to both commercial and residential properties rented out in India. The term "rent" refers to any payment made under a lease, tenancy, or other agreement for the use of land, building, or both.

TDS must be deducted when crediting rent income to the payee account via any mode of payment. As stated by the Income Tax Act, tenants must deduct 31.2 % TDS from rent paid to an NRI landlord and pay the tax to the government.

Unless the NRI landlord provides a certificate showing that his entire income from India is below the exemption level, this tax rate applies to you as a tenant. As per the AO's order, a certificate under Section 197 for lower TDS obligates the deductor to deduct less TDS.

How to deduct Tax?

In some cases, Indian taxpayers must deduct tax from the rent they pay to their landlords, deposit it to their PAN, and give the landlord a form showing the tax deducted and the rent paid. After payment, the tenant must complete Form 15CA and submit it online to the income tax department.

You can get your tax account number (TAN) on the NSDL website. Once the TAN is received, you can subtract tax from your monthly rent and pay the balance to the landlord.

The tax deducted from this month's rent must be paid by the seventh of the next month. The TDS must be paid on time. If not, it would be prosecuted under Section 276B of the Income Tax Act of 1961 and could result in a sentence of three to seven years in prison.

If you fail to deduct tax, you may have a penalty equal to the tax not deducted as per Section 271C of the Income Tax Act.

Can NRI rent out a property that he owns in India?

Yes, an NRI can rent out their property in India and earn income simultaneously. Properties sold in India by NRIs are liable for taxation and TDS. If you are an NRI who wants to sell or rent out a property in India, you have to pay tax on capital gains.

Because this money is earned in India, you must pay tax in India. It is the tenant that will deduct tax at the point of sale. In this case, the tenant must get a TAN number and deduct TDS of 30% from the rent payment. They must also issue a TDS certificate.

TDS is deducted from all payments made to NRIs. This is true even if their income falls inside the 0% income tax bracket, which is for people earning less than 2.5 lakh per year. TDS deductions are applicable to most types of income made by NRIs, including:

  • Rent from property located in India
  • Sale of property

You can claim refunds on TDS deducted if you file your Income Tax Returns (ITR) after the financial year in India has ended. You must also self-compute your income and tax due according to existing slab rates to receive a refund on TDS deducted.

How to claim a TDS refund?

To claim your TDS refund online, you must first complete the following steps:

Step 1: If you haven't previously done so, go to the Income Tax Department's official website and create an account on the portal.

Step 2: Log in to access the portal.

Step 3: Determine which ITR form applies to you and file it.

Step 4: Complete the form by filling in the needed information and submitting it.

Step 5: Use your digital signature to e-verify the completed form.

Lastly, regarding the most important part, payment can be done using the e-tax payment option or by visiting any authorized bank branches.

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