Can I deduct 30% TDS from rental income?
PremiumAs per the I-T Act, tenants must deduct TDS @ 31.2% on rent paid to an NRI and deposit the tax with the government
I am an NRI (non-resident Indian) and get a rent of ₹2,50,000 yearly. I had requested my tenant to deposit the TDS (tax deducted at source). However, due to complexities of understanding the nature of depositing the TDS and limited knowledge and awareness about this topic overall, this did not happen as planned. The tenant seeks to know if the TDS has to be deducted every month or once in a year.
As a taxpayer, I have been declaring this rental income in India every year in my tax returns. I am also declaring all sources of income and paying taxes regularly.
Do you think this arrangement is fine and can continue as it is? Or should I deduct 30% TDS every month on behalf of the tenant and claim it later during tax returns?
—Name withheld on request
As per the I-T Act, tenants must deduct TDS @ 31.2% on rent paid to an NRI and deposit the tax with the government.
There is no minimum threshold for deduction of TDS on rent paid to NRIs. The tax must be deducted from the rent payable at the rate of 31.2%. However, if as a landlord your total income is below the taxable limit you can apply for a certificate under Sec 197 for lower TDS deduction. A certificate under Sec 197 for lower TDS would require the deductor i.e. the tenant to deduct lower TDS as per the order of the AO.
Note that if the tenant fails to deduct tax from the rent paid to an NRI landlord, there may be a penalty equal to the tax not deducted as per Sec 271C of I-T Act. To comply with income tax act requirements , tenants must get a TAN via NSDL website.
Once the TAN is received, the tenant can deduct tax every month and pay the remaining to the landlord.
The TDS from the rent paid in a calendar month must be paid by the seventh of the following calendar month. Not depositing TDS timely comes with penal consequences.
It is not possible for the landlord to deduct TDS under the given situation, the onus of this compliance rests on the tenant. However, it is your responsibility to ensure that your income which is taxable in India has been duly reported in your income tax return to be filed in India.
Archit Gupta is founder and chief executive officer, Clear.in.
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