How NRI Tenants Can Apply for TDS Reduction

When you rent a property in India owned by a Non-Resident Indian (NRI) 🇮🇳, there’s an important financial consideration you need to account for—Tax Deducted at Source, commonly known as TDS. If you’re a tenant, you must deduct a portion of the rent before paying it to the NRI landlord and deposit this amount with the Indian government. Usually, the standard TDS rate is 31.2%, which can have a big impact on the rental income the NRI landlord receives. Fortunately, there’s a way for both landlords and tenants to reduce this TDS rate, making financial dealings much smoother and more manageable. Here, I will guide you through the steps tenants can take to manage TDS reduction effectively.

Understanding TDS on NRI-Owned Properties

TDS stands for Tax Deducted at Source. This means the tenant, as the payer, deducts a part of the payment, which is rent in this case, and deposits it with the Indian government for the NRI landlord. Let’s look at the critical points for TDS on NRI-owned properties:

• Standard TDS Rate: The typical deduction rate is 31.2%, no matter how much the rent is.
• Mandatory Deduction: TDS must be subtracted before giving rent to the NRI landlord.
• Compliance Requirements: Tenants must fill out and submit Form 15CA and sometimes Form 15CB after deducting the TDS.

Applying for TDS Reduction: A Step-By-Step Guide

Non-Resident Indians can apply for a TDS reduction or even a nil deduction under Section 197 of the Income Tax Act. This is done by obtaining a certificate that allows tenants to deduct taxes at either a decreased rate or not at all, based on the landlord’s income and tax liability.

Steps for NRIs to Obtain a Lower or Nil TDS Certificate

1. Prepare Necessary Documents:
   • PAN card of the NRI
   • Tax Residency Certificate (TRC)
   • Proof of income
   • Recent bank statements
   • Property ownership documents
   • Details of any investments
2. Submit Form 13:
   • Log into the Income Tax Department’s e-filing portal.
   • Accurately complete Form 13 with all required details.
   • Attach supporting documents.
3. Verification Using Digital Signature Certificate (DSC):
   • The latest rules require verification of Form 13 applications using DSC. Methods like Aadhaar OTP or mobile OTP are no longer valid.
4. Application Review:
   • The application and justifications are reviewed by the Assessing Officer (AO).
   • The AO uses specific software to decide if a lower or nil rate fits.
5. Issuance of Certificate:
   • If approved, a certificate detailing the lower TDS rate is issued. This is valid for one financial year or specific transactions.

Tenant’s Role in Applying for TDS Reduction

Once the NRI landlord gets a lower or nil TDS certificate, the tenant has a role to play. Here’s what the tenant should do:

1. Obtain Tax Deduction and Collection Account Number (TAN):
   • Tenants need to apply for a TAN on the NSDL website before deducting TDS.
2. Deduct Reduced TDS:
   • Deduct tax at the lower rate mentioned in the certificate rather than the 31.2% standard rate.
3. Deposit TDS with Authorities:
   • Use Challan ITNS 281 to properly deposit the TDS deducted with the Income Tax Department by the 7th of the next month.
4. File Forms 15CA and 15CB:
   • File Form 15CA online after TDS is deposited.
   • If rent payments exceed ₹5,00,000 in a year, get Form 15CB certified by a Chartered Accountant before filing Form 15CA.
5. Provide TDS Certificate to Landlord:
   • Issue Form 16A as proof of tax deduction within 15 days after filing quarterly returns.

Benefits of Lower/Nil TDS Certificates

Applying for this certificate makes financial transactions smoother for both NRIs and tenants:

• For NRIs:
  • The tax is based on the actual income, ensuring fair taxation.
  • Reduces cash flow issues caused by high initial tax deductions.
• For Tenants:
  • Easier compliance with tax rules, reducing administrative work.
  • Avoids arguments with landlords over high tax deductions.

Important Considerations

Double Taxation Avoidance Agreement (DTAA)

NRIs living in countries that have a DTAA with India may get reduced tax rates thanks to these agreements. However, proper documents and compliance with DTAA rules are crucial to benefit from it.

Processing Time

The entire process of getting a lower or nil TDS certificate involves several levels of review by tax authorities and usually takes about 3 to 6 weeks.

Validity

The validity of these certificates is generally for one financial year or specific transactions as mentioned during the application.

Penalties for Non-Compliance

Not deducting or depositing TDS can lead to penalties for tenants under Indian tax laws. It is essential to meet all requirements to avoid legal issues.

Recent Updates in Rules

As of October 2023, it is mandatory to use DSC for verifying applications of Form 13. Other methods such as Aadhaar OTP have been discontinued. Despite this update, the application process remains largely unchanged.

Conclusion

Renting a property from an NRI in India involves strict rules regarding TDS deductions. However, by understanding the process and working closely with the landlord, tenants can manage to reduce the tax legally by using lower or nil deduction certificates as outlined in Section 197. By following these updated guidelines, including the new DSC verification for Form 13 applications, all parties involved can benefit from better financial arrangements while staying compliant with Indian tax laws.

VisaVerge.com’s investigation reveals that navigating these processes doesn’t have to be cumbersome if both the tenant and landlord clearly understand their roles. For more information about TDS and tax compliance, you can visit the official Income Tax Department website.

Learn Today

TDS (Tax Deducted at Source): A tax mechanism where a payer deducts tax from payments made to a payee and deposits it with the government.
Non-Resident Indian (NRI): A person of Indian origin living outside India who has not stayed in India for 182 days or more during a financial year.
Form 13: An application form filed by NRIs to request a lower or nil TDS deduction certificate under the Income Tax Act.
Double Taxation Avoidance Agreement (DTAA): A treaty between two countries to prevent individuals from being taxed twice on the same income.
Digital Signature Certificate (DSC): An electronic credential that validates digital transactions, required for verifying Form 13 applications for TDS reduction.

This Article in a Nutshell

Renting property from an NRI in India involves navigating Tax Deducted at Source (TDS). Typically, tenants must deduct and deposit 31.2% of rent. However, NRIs can apply for reduced TDS rates through a certificate. This benefits both parties by easing compliance and enhancing cash flow, ensuring smoother financial transactions.
— By VisaVerge.com

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