TDS on NRI Rental Income: Tax Rules & How to File Returns

Who is an NRI?

NRI is an Indian citizen but not a resident of the country. Under section 6, we can determine the residential status of an individual. According to this section 6, the following conditions hold for residents: -

• During previous years, he/she must have resided in India for at least 182 days.
• He/she must have resided in India for 60 days during the previous year and for 365 days during the immediately preceding previous years at least.

Thus, accordingly, an NRI is one that doesn’t satisfy any criteria. Read more here.

Provisions for TDS While Renting an NRI Property

According to Section 195 of the Income Tax Act of 1961, an individual living in a house owned by a Non-Resident Indian (NRI) or a person/entity paying rent or interest to an NRI or a foreign company must mandatorily deduct a TDS of 31.2% (30% tax + Surcharge + 4% cess) while paying rent. Upon TDS payment, the tenant needs to submit Form 15CA to the Income Tax Department. If the remittance to an NRI exceeds Rs.5,00,000, then the tenant must also submit Form 15CB before submitting Form 15CA.

For example, suppose Mr. Nair is an NRI who let out his property to Mr. and Mrs. Jhangir for a monthly rent of Rs. 50,000. As per the NRI rent TDS section, Mr. and Mrs. Jhangir have to deduct 31.2% of the rental amount every month while making rental payments to their landlord.

So, the actual amount that they would pay is Rs. (50,000 – 31.2% of 50,000), i.e., 34,400. The TDS of Rs. 15,600 has to be deposited with the income tax department.

How is Tax Deducted at Source?

Tenants must have a TAN for the smooth deduction of TDS. This TAN stands for the tax account number and this can be received via the NSDL website. As soon as you receive the TAN or the tax account number, the tenant can easily deduct tax each month and pay the remaining amount that needs to be paid to the landlord.

Also, as per the rule, the tax must be paid by the 7th of the following calendar month, and for the month of March, TDS must be paid by the 30th of April.

Given below are the steps to be followed to deduct TDS -

• Obtain a TAN Number - The tenant must first obtain a TAN (Tax deduction and collection account number). You can obtain this through the NSDL website.
• Deduct and Deposit TDS - Once you have a TAN, you need to deduct 31.2% TDS from the total rent paid to the NRI. This amount should be deposited with the government within 7th day of the next month using ITNS281.
• File TDS Returns and Issue Certificate - After depositing the TDS, the tenant is required to file a quarterly TDS return in Form 26Q. The tenant must also issue a TDS certificate to the NRI landlord in Form 16A. This form can be downloaded from the TRACES website within 15 days of the due date of filing the return.

How to File TDS Returns on Payment Made to Non-Resident?

Tenants must file a TDS return, and this needs to be done within a month. This month is counted from the end of each quarter for the TDS paid to the NRI. For example, you must file returns by 31st July 2025 for the TDS on rent paid for April, May, and June 2025. The tenant also needs to provide a TDS certificate by means of Form 16A to the landlord within a period of 15 days from the due date for filing a quarterly TDS return.

To know more on how to file a TDS return on the rent paid to the NRI, connect with our tax experts.

Penalty for not paying TDS

The TDS must be paid on time, i.e., by the seventh of the following calendar month. If the tenant does not pay the TDS on time, it attracts prosecution under Section 276B of the Income Tax Act, 1961.

Here are the penalties applicable -

• Penalty for Late Payment: If the tenant fails to deposit the TDS to the government within the specified time, i.e., by the 7th of the following month. This leads to imprisonment for a period ranging from 3 months to 7 years.
• Penalty for Non-Deduction: In cases where the tenant entirely neglects to deduct TDS from the rent paid to the NRI landlord, Section 271C of the Income Tax Act imposes a penalty equivalent to the amount of TDS that should have been deducted.

Tax on rental income exemption for NRIs

Certificate of Exemption (Section 197): NRIs can obtain a Certificate of Exemption under Section 197 of the Income Tax Act if their total income from India is below the exemption limit. This certificate allows them to have a lower tax liability or potentially be exempted from paying tax on rental income. The application for this certificate needs to be made to the Assessing Officer (AO), who will then decide on the tax rate or exemption based on the NRI's circumstances.

Double Tax Avoidance Agreement (DTAA): The Double Tax Avoidance Agreement is an agreement between India and other countries to prevent taxpayers from paying tax twice on the same income. Under this agreement, if an NRI's country of residence has a DTAA with India, they might be eligible to claim benefits such as relief from double taxation or special rates on income earned in India, including rental income from properties situated in India. Different countries have different provisions within the DTAA, and more than 90 countries, including the USA, Canada, UK, Australia, and others, have such agreements with India.

Things to Know:-

• Tenants must fill 15CA on the income tax portal each time rent is paid.
• If the annual rent paid exceeds the desired amount, which is Rs.5 lakh, the tenant needs to take a form 15CB from CA.

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

A Non-Resident Indian (NRI) can apply for a lower or nil TDS rate under Section 197 of the Income Tax Act. This is done by obtaining a certificate that permits tenants to deduct TDS at a reduced rate or at a nil rate, depending on the landlord's total income and tax liability.

NRIs looking for a lower or nil Tax Deducted at Source (TDS) certificate can follow these steps:

• Gather Required Documents: Compile the following documents:
  • NRI's PAN card
  • Tax Residency Certificate (TRC)
  • Proof of income
  • Recent bank statements
  • Property ownership documents (if applicable)
  • Details of any investments
• Submit Form 13:
  • Log in to the Income Tax Department's e-filing portal.
  • Complete Form 13 accurately, providing all necessary information.
  • Attach the supporting documents listed above.
• Verify with Digital Signature Certificate (DSC): Current regulations mandate verification of Form 13 applications using a Digital Signature Certificate (DSC). Other verification methods, such as Aadhaar OTP or mobile OTP, are no longer accepted.
• Application Review: The Assessing Officer (AO) will review the application and supporting documentation. The AO uses specialized software to determine the appropriate TDS rate (lower or nil).
• Certificate Issuance: If the application is approved, a certificate specifying the reduced TDS rate will be issued. This certificate is valid for one financial year or for specific transactions, as indicated.

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