Which tax law applies to NRI landlords?

Under Indian tax laws, an NRI landlord has to pay tax for the income earned by him/her as rent for the property situated in India. The residential status of the person is relevant to determine the income tax provision applicable to him/her.

Who is an NRI as per the Income Tax Act?

A person is a resident Indian if he satisfies any of the below-mentioned conditions:

1. If the person is in India for 182 days or more in the financial year or
2. If he/she is in India for 60 days or more in the relevant financial year and 365 days or more in the immediately preceding four years.

The number of 60 days as provided in the second condition is substituted with 182 days for persons of Indian Origin or Indian Citizens who visit India in that year or leave India in the relevant financial year as a crew member or for employment outside India. As per budget 2021, this condition of 182 days has been changed to 120 days, i.e., 60 days will be substituted by 120 days.

Deemed resident:

If a citizen of India is not liable to pay tax in the country because of his residence or domicile and his Indian income (other than from foreign sources) exceeds Rs 15 lacs during the previous year, he is a deemed resident.

A person who does not fulfill any of the above conditions is a non-resident Indian.

A tenant must deduct TDS under the income tax laws:

A duty is cast upon the tenant to pay the rent to the NRI landlord after the TDS deduction (tax deducted at source) from the rent. Rent is credited to the NRO account of the NRI if the tenant is a resident and the NRE account if the tenant is also NRI.

The tenant must get a TAN (tax account number) from the Income-tax Authorities and pay the tax. The tax is paid at a rate of 31.2%. (30% TDS plus surcharge and education cess). However, a lower tax rate is applied if the NRI’s income is below the exemption limit. In such cases, the NRI landlord must obtain a certificate from the Income Tax Authorities and provide it to the tenant. The rate mentioned in the certificate is applied. TDS is deducted irrespective of the amount of rent.

The tenant fills Form 15 CA whenever rent is paid and submits it to the department. If the rent paid per annum is more than Rs.5 lacs, the tenant must obtain Form 15CB from a Chartered Accountant. In the form 15CB, details of deductions, DTAA (double tax avoidance agreement), and TDS rates are mentioned.

The TDS deducted for a particular month must be paid by the 7th of the following month.

Deductions permissible under tax laws for NRI landlords:

• Standard deduction of 30%
• Deduction for the installment of the principal amount of home loan limited up to Rs 1,50,000 per year
• Deduction for interest paid in the year on borrowings for construction/repairs of the said property limited up to Rs 2,0,000 per year
• Municipal Taxes

Tax is payable on the NRI landlord’s net rental income by allowing deductions permissible under the income tax rules for NRIs.

Source: Which tax law applies to NRI landlords?