Understanding TDS Deduction on NRI Rental Income and Filing Requirements

Income Tax Implications:
When an NRI (Non-Resident Indian) lets out property situated in India, the tax liability arises in India as per Section 9 of the Income Tax Act, 1961, since income from immovable property is taxable where the property is located.

TDS Deduction:

• The tenant must deduct TDS at 30% of the rental income paid to the NRI landlord.
• After deducting TDS, the tenant must issue a TDS certificate (Form 16A) to the landlord.

Filing Income Tax Return (ITR) in India:

• The NRI landlord must file an income tax return (ITR) in India, declaring the rental income.
• Deductions include:
  • Standard deduction of 30% for property maintenance under Section 24.
  • Interest on home loans under Section 24.

Refund or Additional Tax:

• If TDS exceeds the actual tax liability, the NRI can claim a refund.
• If the tax liability is higher than the TDS, the NRI must pay the balance tax.

GST Implications on Rental Income:
Under the GST Act, renting out an immovable property is considered a supply of services.

• GST on Residential Property:

  • No GST if the property is rented for personal residential use.
  • If the property is rented by a registered person in their personal capacity (not for business), no GST applies.

• GST on Commercial Rentals:

  • GST applies at 18% for business purposes.

• GST Registration Requirement:

  • Landlords earning more than ₹20 lakh annually from services, including rent, must register under GST.
  • GST registration can be in the state where the property is located or where the landlord resides (if in India).

• GST Rates and Input Tax Credit:

  • GST is calculated at 18% (9% CGST + 9% SGST) or 18% IGST, depending on the transaction.
  • GST paid for repairs, maintenance, and brokerage can be claimed as an input tax credit, if not capitalized.

Rental Agreement Options for NRIs:

1. NRI rental agreement using POA:
   NRIs can authorize someone via Power of Attorney (POA) to handle the rental agreement if the owner is abroad, including signing and registering the agreement.

2. Online rent agreement for NRIs:
   NRIs can use platforms offering eSign rental agreements or create online rental agreements in India, saving time and travel.

By following these processes, NRIs can ensure compliance with Indian laws related to rental agreements in India, TDS deductions, and GST obligations.

Also Read: Common mistakes to avoid while making a rent agreement