What should be done if you fail to deduct tax on rent paid to an NRI?
My landlord is a non-resident Indian (NRI). I have already paid him the house rent for April and May by cheque but did not deduct tax at source. What should I do now? —Name withheld on request Under India’s income tax laws, if the payee qualifies as non-resident in India during the relevant financial year, the payer is required to effect TDS (tax deducted at source) at a specified rate (plus applicable surcharge and health and education cess) on taxable income of the payee.
In case of rental income, the specified rate is 30% (plus applicable surcharge and health and education cess). It is the payer’s obligation to effect TDS on the taxable income of the non-resident and deposit the same with the income tax department. In case of non-compliance, the payer will be liable for penal consequences.
If the non-resident owner’s total taxable income (including rental income) in India is below ₹2.5 lakh, there is arguably no requirement for TDS on the rental amount. However, the tenant is unlikely to know the total taxable income of the owner and so may have to deduct tax unless the owner furnishes a lower or nil TDS certificate obtained from the income tax officer. In this case, the tenant may withhold TDS for April and May from the rent payable for the latest month and deposit the same with the income tax authorities at the earliest along with interest for late deposit of TDS at 1.5% per month.
Apart from depositing TDS on a monthly basis, the tenant is required to file a quarterly withholding tax return in Form 27Q (reporting the rent amount paid and TDS deposited every month) and issue withholding tax certificate (Form 16A) on a quarterly basis to the owner. I am a seaman who stays outside India for more than six months. I
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