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Renting a property from a non-resident landlord involves a different set of compliance requirements under Indian tax law. This guide outlines the complete process for tenants as well as NRIs, ensuring full compliance with TDS provisions and avoiding penalties.

1. GST Applicability on Rent

GST does not apply to rent paid for residential use.
Even if the landlord is registered under GST or engaged in business, renting a residential property for living purposes is completely exempt.
Therefore, tenants occupying a residential house do not face any GST obligations.

2. TDS Responsibility Under Section 195

When rent is paid to an NRI landlord, TDS must be deducted under Section 195 of the Income Tax Act.

Key points:

• TDS is mandatory irrespective of the monthly rent amount.
• The tenant is legally responsible for deducting and depositing TDS with the government.
• Failure to deduct or deposit TDS on time attracts interest, late fees, and penalties on the tenant.

3. TAN Requirement for the Tenant

Before deducting TDS, the tenant must obtain a TAN (Tax Deduction and Collection Account Number).

Important points:

• TAN must be applied online; approval usually takes 7–10 days.
• TDS cannot be deposited or reported without a TAN.
• TAN is necessary only when the landlord is a non-resident; for resident landlords, this requirement does not apply.

4. Rate of TDS on Rent Paid to NRI

The default TDS rate is:

30% + 4% cess = 31.2% on the gross rent.

However, the NRI landlord can reduce this rate by obtaining a Lower or Nil Deduction Certificate (Form 1) from the Assessing Officer.
Once approved, the tenant must deduct TDS at the reduced rate mentioned in the certificate.
Since the process takes time, it is advisable for the landlord to apply in advance if required.

5. Time of Deduction and Deposit of TDS

• TDS must be deducted at the time of making the rent payment.
• The deducted amount must be deposited with the Income Tax Department by the 7th of the following month.
• Exception: TDS deducted in March must be deposited by 30th April.

Due Dates for TDS Deposit

6. How to Deposit TDS

The tenant must create a TAN-based login on the Income Tax e-filing portal.

Steps:

1. Login using TAN
2. Go to e-File → e-Pay Tax → New Payment
3. Select Assessment Year
4. Choose TDS – Section 195 (Other Sum)
5. Fill in challan details
6. Pay using Challan No. ITNS 281

7. Filing of TDS Return – Form 27Q

Depositing TDS alone is not sufficient.
To link the TDS with the landlord’s PAN, the tenant must file a quarterly TDS return in Form 27Q.

Due Dates for Form 27Q

If Form 27Q is not filed, the TDS credit will not reflect in the landlord’s Form 26AS.

After filing the return:

• The tenant can download Form 16A from the TRACES portal
• Form 16A must be provided to the NRI landlord as proof of TDS deduction

Given the detailed compliance requirements, professional assistance is often advisable.

Compliance for the NRI Landlord

8. Claiming TDS Credit

Once the tenant files the TDS return correctly:

• TDS will appear in the NRI’s Form 26AS
• The NRI can claim credit for the deducted TDS while filing their Indian Income Tax Return (ITR)

If the TDS deducted exceeds the final tax liability:

• The excess amount can be claimed as a refund
• Refunds are paid with interest, as per Income Tax rules

Filing an ITR is essential to claim refunds and maintain compliance for rental income earned in India.

Illustration

Monthly rent: ₹1,00,000
TDS rate: 31.2%

1. Tenant deducts: ₹31,200
2. Actual payment to landlord: ₹68,800
3. TDS is deposited with the government by the 7th of the following month
4. After the quarter ends, the tenant files Form 27Q
5. Tenant issues Form 16A to the landlord
6. After the financial year ends, the NRI landlord files ITR:
   • If total tax liability > TDS → pay balance as self-assessment tax
   • If total tax liability < TDS → claim refund (with interest)

Conclusion

TDS on rent paid to NRIs involves a structured set of obligations for both tenants and landlords.
Proper deduction, timely deposit, and accurate filing of Form 27Q ensure smooth credit for the landlord and prevent penalties for the tenant.
Given the complexities, seeking professional guidance can help ensure full and error-free compliance.

If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.

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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.