New Delhi: A lot of people whose relatives shift abroad and become NRIs often rent out the property left behind for another source of income. If you have taken flat or property of a non-Resident Indian (NRI) on rent, you need to know tax rules for the same.
Under India’s income-tax law, if the payee qualifies as “Non-Resident” in India during the relevant financial year, the payer is required to deduct 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). Accordingly, it is the payer’s obligation to deduct and deposit TDS on the taxable income of the “Non-Resident”. In case of non-compliance, the payer will be liable for penal consequences.
When an NRI-owned property is taken on rent, it is the obligation of the tenant to deduct tax (TDS) u/s 195 of the Income Tax Act and deposit it to the Government. The TDS at 1% is applicable for Resident sellers of the property. When an NRI-owned property is sold, the buyer should deduct tax (TDS) u/s 195 at rates depending upon the period of holding of property by the seller.
In case the property is held for more than 24 months, then it is considered as a Long-Term Asset and therefore TDS is to be done at 20% plus applicable surcharge and Cess. Please refer to the chart for TDS rates. If the property was held for less than 24 months, it is considered a Short-Term Asset and attracts TDS of 30% plus applicable Surcharge and Cess.