Like residents, many non-resident Indians (NRIs) too have found the lure of investing in real estate irresistible. This has happened despite the fact that it is a herculean task for these NRIs to maintain their vacant apartments. Individuals who take these properties on rent also need to be aware of the tax implications.
TDS ON RENTAL VALUE
The provision that impacts both the NRI and the tenant is Section 195 of the Income-tax Act. As per this section, it is mandatory on the part of the tenant to deduct 30% of the monthly rental value at source. Rental value excludes the amount allowed for repairs.
This is a cumbersome task, considering that for doing so the potential tenant of a property owned by an NRI has to apply for a TAN or tax deduction and collection account number with the I-T department. Only such individuals having a TAN card are allowed to carry out transactions that include tax deduction at source (TDS).
Subsequently, such individuals/HUFs are required to quote the TAN on quarterly deposits of TDS on the tax deposit slips they submit. The tax has to be deposited at the counters of specified banks authorised by tax authorities.
Wait, theres more. The tenant also has to give a statement, very much like Form 16, to the NRI declaring the total tax proceeds deducted at source. More importantly, the onus of collecting TDS lies with the tenant. It is the tenant who will be penalised for not complying with the tax laws.
The only way out here is that individuals/HUFs or even companies can apply with the assessing officer for deducting a lower amount of tax or nil TDS. However, this can happen only in such cases where the assessing officer is convinced that the NRI is subject to a lower tax liability or will have no tax liability. But even here, the tenant needs to proceed with great caution. Normally, for waiving off the TDS requirement, he should be careful that the owner has filed with the assessing officer the required form, and that he has been granted approval.
TDS on rental charges received is not a major hassle for the NRI, provided he has a PAN card. Holding a PAN card makes the NRI eligible for rebate under Section 80 C if he has invested in tax-saving schemes, or in case he has taken a housing loan, to claim refund by filing annual tax returns.
In such cases, however, the only issue for the NRI would be that he would be able to remit the amount received on account of tax refund only a little later. The rent is credited to his NRO account.
In all cases where the NRI thinks that the rental income should not attract tax due to housing loan taken back home, its in his interest to fill Form 13 for lower TDS/no TDS before the assessing officer or later claim for refunds after filing IT returns. If he fails to do so, the remittances of rental proceeds from the NRO account could be questioned regarding the issue of TDS at 30%.
Its mandatory for the tenant to deduct 30% of the monthly rental value at source
TAN is a 10-digit alpha numeric number, which is required by those who are responsible for deducting or collecting tax
The onus of collecting TDS lies with the tenant
From the owners perspective, TDS on rental charges received is not a major hassle, provided he has a PAN card