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November 14, 2020

Paying rent to NRI? TDS rate is 5% or 30%?

by CA Shivam Jaiswal in Income Tax

Paying rent to NRI? TDS rate is 5% or 30%?

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payments. The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself.

TDS on non-resident payment has always been a complex area of Income Tax Compliances. Detailed analysis is required to be performed to each transaction to understand TDS on foreign payment before you can initiate a payment. Wrong TDS on foreign party may put your company at greater risk in later years when the assessment is done.

Who is considered as NRI under Income Tax Provisions?

It is essential to determine residential status of taxpayer to determine taxability of income earned by such taxpayer. Section 2(30) defines non-resident as a person who is not a resident. Section 6​ lays down the test of residency for different taxpayers. According to Section 6, An individual is said to be resident in India in any previous year, if he:

  • is in India in that year for 182 days or more; or
  • within the 4 years preceding that year was in India for 365 days or more and is in India for 60 days or more in that year.

A person will be considered as NRI if he/she does not fulfill the above-mentioned conditions. Let us refer to the various TDS provisions for non-residents in this article.

Section 194I – TDS on Rent

The government introduced the Section 194I to cover the income by way of rent under TDS. The person (not being an Individual or HUF) who is responsible for paying of rent is liable to deduct tax at source. Also, individuals and/or HUFs who are subject to tax audit are also under an obligation to deduct the tax at source.

What is the rate of TDS on rent under Section 194I?

Section 194I of the Income Tax Act, casts a duty on the payer of rent to deduct tax of the rent on any land or building, if the aggregate of the rent paid or likely to be paid during the year, exceeds Rs 2.40 lakhs.

Nature of PaymentRates of tax deductionTDS rate from 14 May 2020 until 31 March 2021
Rent of plant and machinery2%1.5%
Rent of land or building or furniture or fitting10% (5% if rent exceeding Rs 50,000 / month is paid by individual/HUF who are not liable for tax audit)7.5% (3.75% if rent exceeding Rs 50,000 / month is paid by individual/HUF who are not liable for tax audit)
  • The limit of Rs 2.40 lakhs is applicable for each payee and not for each of the properties.
  • So, in case the owner of a property has let-out more than one property to the same lessee and the annual rent whereof, is less than Rs 2.40 lakhs for each property annually but the aggregate of the rent for all the properties taken on rent from the same person is likely to exceed Rs 2.40 lakhs, then, the lessee has to deduct the tax at source.

Section 194IB – TDS on Rent by Individuals/HUF

  • According to Section 194IB, it is mandatory for any person, i.e. individuals/HUF not liable to audit u/s 44AB, to deduct taxes for a rent paid to a resident, exceeding Rs 50,000 per month.
  • Tax rate applicable is 5%, in case the rent payment exceeds Rs 50,000 and the landlord’s PAN is provided. Otherwise, if the PAN is not available, then TDS of 20% will be applicable.
  • TDS rate from 14th May 2020 until 31st March 2021 is 3.75%

At what rate will TDS be deducted for an NRI?

TDS provisions are separate for NRI’s. Budget 2017 changed the rules for tax deduction at source on rent paid in India. Tenants paying rent on properties owned by NRIs are required to deduct 31.2% (30% + 4% cess) tax at source and submit the aggregate amount to the tax authorities.

TDS has to be deducted irrespective of the quantum of amount.

This tax rate is applicable unless the NRI landlord has a certificate stating that his total income from India is below the exemption limit. A certificate under Section 197 for lower TDS received under Section 197 would require the deductor to deduct lower TDS as per the order of the AO.    

What is the due date of depositing TDS?

TDS deducted by the payer (a non – government payer) is to be paid to the government in the following way:

  • TDS deducted during the months of April – February should be paid to the government on or before 7 days from the end of the month in which TDS is deducted.
  • The TDS deducted during the month of March needs to be paid to the government on or before 30th day of April.

Forms to be filled for TDS

Upon payment, the tenant must fill-in Form 15CA and submit it online to the income tax department. In this case, TDS is mandatory on the rent paid irrespective of the amount payable.

Upon payment, the tenant must fill form 15CA and submit it online. If annual payment of rent is above Rs.5,00,000, then tenant needs to obtain Form 15CB from a Chartered Accountant.

Form 15CA is required to be filled by the payer when he is making a payment outside India to a non-resident or to a foreign company. Form 15CA will not be required by an Individual for remittance, which does not require RBI Approval.

Form 27Q is a statement for TDS from Additional Income like Interest, Dividends, or any other amount Payable to NRI (Foreigners). Form 27Q is relevant for payments made except the salary to non-resident Indians and foreigners. It is used for the declaration of TDS for the NRIs and Foreigners.

PeriodDue Date
April to June31st July
July to September31st October
October to December31st January
January to March31st May

It is also important to remember, Penalty under section 271C of the Income tax Act a sum equal to the amount of tax which such person failed to deduct or pay. Penalty under section 271H of the Income-tax Act being a sum not less than Rs. 10,000 but which may extend to Rs.1,00,000 will be levied if the person fails to file the return within the due date prescribed or furnishes incorrect information. Interest for failure to deduct the tax or after deducting delay in payment of such TDS will also be levied under section 201 of the Act at the simple interest rate 1-1.5% every month or part of the month.

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