Is your landlord a non-resident Indian? Know your tax compliances.

TDS provisions on rent to a resident landlord are simpler and do not apply unless the monthly payout exceeds ₹50,000. In the case of NRI landlords, any rent amount is subject to TDS.

Even when TDS is applicable for a resident landlord, the rate is only 2% of the rent paid for an entire financial year. That amount has to be deducted from the rent for the last month of the financial year or the last month of tenancy.

For an NRI landlord, the TDS rate is 31.2% of the rent and should be deducted every month. However, income tax authorities can issue a certificate authorising you to deduct TDS at a lower rate based on your application and supporting documents.

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How can a tenant ascertain if their landlord is a ‘resident’ or a ‘non-resident’?

It is the tenant’s responsibility to ascertain if their landlord is a ‘resident’ or an NRI for that financial year. You need to collect a written confirmation from the landlord each year declaring their status. 

If you fail to deduct TDS from the rent payable to an NRI landlord, you cannot claim ignorance of the landlord’s residential status; tax authorities can still hold you responsible for non-compliance.

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What should you do to be compliant with the tax law?

You have to obtain a tax deduction account number (TAN) from income tax authorities. This is necessary for paying the TDS amount to the government. TDS deducted from rent should be deposited with the government within seven days of the following month. For March, the TDS can be paid by 30 April. 

At the end of each financial quarter, you have to file an e-TDS return with income tax authorities providing details of your landlord, the rent amount, the TDS deducted, the date of payment, details of the challan through which TDS was paid, etc. The e-TDS returns are required to be filed by the end of the following month. However, for the last quarter of the financial year(January-March) e-TDS returns can be filed by 31 May.

The tedious activities of obtaining TAN, filing e-TDS returns, etc., are not applicable if the landlord is a ‘resident’, even if the monthly rent is above ₹50,000. In such cases, payment of TDS and filing returns is simple and can be done through filing Form 27QC once a year.

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What are the implications of non-compliance?

If you fail to deduct TDS while paying rent to an NRI landlord, you have to pay an interest of 1% per month on the amount of TDS until it is paid in full. If you have deducted TDS and failed to pay the amount to the government within the deadline, the interest will be 1.5% per month. For delays in filing e-TDS, ₹200 per day will be payable until the returns are filed (subject to a limit equal to the amount of TDS).

Also, income tax authorities may levy a penalty equal to the amount of TDS if you fail to deduct TDS. 

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If you have set aside TDS but have not deposited the money with the government by the due date for filing the e-TDS return, the tax authorities can not only recover the amount with interest but also prosecute you for keeping the money belonging to the government.

Therefore, tenants must ensure they fully comply with all these tax rules if they have rented or leased property from an NRI landlord. Ignorance is not an excuse.

(This article is intended to provide basic awareness only. Taxpayers are advised to consult their tax consultants on rules applicable to them.)

Prakash Hegde is a chartered accountant in Bengaluru