TDS on NRI Rental Income — Who Deducts, Who Files, What You Receive

By Advocate Ketan Palshikar | Property Lawyer and Property Manager, Pune

If you are an NRI landlord receiving rent from your Pune property, your tenant has a legal obligation you may not know about — and they almost certainly do not know about either.

Under Section 195 of the Income Tax Act, 1961, every person making a payment to a non-resident that is chargeable to tax in India is required to deduct tax at source before making that payment. Rental income paid to an NRI landlord is chargeable to tax in India. The obligation to deduct TDS therefore falls on your tenant — regardless of the rent amount, regardless of whether the tenant is an individual or a company, and regardless of whether anyone has told them about it.

Most tenants in Pune renting from NRI landlords have never deducted TDS. Many NRI landlords have never asked them to. And yet the legal obligation exists — and the consequences of non-compliance fall on both parties.

This page explains the TDS framework for NRI rental income completely — the legal basis, the applicable rates, the forms involved, what you as the NRI landlord receive, and what happens when compliance has not been followed.

On This Page

Section 195 of the Income Tax Act, 1961 reads, in substance, as follows: any person responsible for paying to a non-resident any sum chargeable under the provisions of this Act shall deduct income tax at the time of credit or payment, whichever is earlier.

Three elements of this provision are worth understanding precisely:

“Any person” — the obligation applies to all payers. There is no exemption for individual tenants, HUF tenants, or small businesses. If you are paying rent to an NRI, Section 195 applies to you regardless of your own tax status.

“Any sum chargeable under the provisions of this Act” — rental income from Indian property is chargeable to tax in India under Section 9(1) of the Income Tax Act, which deems income from property situated in India to be income accruing in India, taxable in India regardless of the recipient’s residence.

“At the time of credit or payment, whichever is earlier” — the obligation to deduct arises when rent is credited to an account or paid, whichever happens first. A tenant who credits rent to a management account has triggered the TDS obligation at that point.

This is different from Section 194I — the TDS provision applicable to rent paid to resident Indians — which has a threshold of ₹2.4 lakhs per year and applies only to certain categories of payers. Section 195 has no such threshold and applies to all payers.

Who Must Deduct TDS

Under Section 195, every tenant paying rent to an NRI landlord must deduct TDS. This includes:

Individual tenants — a salaried employee renting a flat for residential use. No exemption.

HUF tenants — a Hindu Undivided Family renting property. No exemption.

Partnership firms — a firm renting office or residential space. No exemption.

Companies — a private limited company, public company, or LLP renting property. No exemption — and companies typically have finance or compliance teams who should be aware of this obligation.

Trusts and institutions — any entity paying rent to a non-resident. No exemption.

The one practical nuance:

Where the tenant is an individual or HUF not liable to tax audit under Section 44AB, and the payment is to a resident Indian, Section 194I provides an exemption from TDS for rent below ₹2.4 lakhs per year. This exemption does not apply to Section 195 payments to non-residents. An individual tenant renting from an NRI at any rent amount is subject to Section 195.

This nuance is important because many individual tenants — and the brokers who advise them — assume the ₹2.4 lakh threshold from Section 194I applies to all rental TDS. It does not apply to NRI landlords.

What Rate Applies — Default and DTAA

The rate of TDS under Section 195 depends on whether the tenant has documentation to support a DTAA-reduced rate or a lower deduction certificate.

Default Rate — Without DTAA Documentation

In the absence of DTAA documentation from the landlord, the tenant is required to deduct TDS at the rate applicable to the nature of income for non-residents.

For rental income — income from house property — the applicable rate under the Income Tax Act for non-residents is 30% of the gross rental amount, plus applicable surcharge and health and education cess.

The surcharge rate depends on the total income:

  • Income below ₹50 lakhs: no surcharge
  • Income between ₹50 lakhs and ₹1 crore: 10% surcharge on tax
  • Income above ₹1 crore: 15% surcharge on tax

Health and education cess: 4% on tax plus surcharge.

For most NRI landlords receiving rent on a single Pune property, the effective default TDS rate is approximately 31.2% — 30% tax plus 4% cess on the tax amount.

This means: on a monthly rent of ₹30,000, the tenant should be deducting approximately ₹9,360 per month as TDS and remitting ₹20,640 to the landlord.

Most NRI landlords who have been receiving full rent without TDS deduction are therefore receiving income on which TDS was required but not deducted — creating a compliance problem for both parties.

DTAA-Reduced Rate

India’s Double Taxation Avoidance Agreements with most countries where NRIs reside provide for reduced TDS rates or specific tax treatment of rental income. The applicable rate depends on the specific DTAA with your country of residence.

To benefit from the DTAA rate, you must provide your tenant with:

  • Tax Residency Certificate (TRC) from your country of residence — annually
  • Completed Form 10F — filed on the Income Tax portal

With these documents, the tenant deducts TDS at the DTAA rate rather than the default 30% rate.

The specific DTAA rate for rental income varies by country and must be confirmed with a CA who specialises in NRI taxation. It is not stated on this page as a fixed figure because it depends on the specific treaty provision and interpretation applicable to your situation.

Lower Deduction Certificate — Section 197

A lower deduction certificate under Section 197 allows TDS to be deducted at a rate lower than the default — or at nil — where the actual tax liability is lower than the TDS that would otherwise be deducted. This is discussed in the dedicated section below.

The TDS Deduction Process — Step by Step

The correct TDS compliance process for a tenant paying rent to an NRI landlord:

Step 1 — Obtain NRI landlord’s PAN
The tenant must have your Indian PAN to file TDS returns. Without PAN, TDS must be deducted at the higher of the applicable rate or 20% — under Section 206AA. Providing your PAN to your tenant is essential.

Step 2 — Obtain TRC and Form 10F if claiming DTAA benefit
If you want TDS deducted at the DTAA rate rather than the default 30%, provide your tenant with your Tax Residency Certificate and Form 10F before the first rent payment.

Step 3 — Calculate TDS amount
The tenant calculates TDS on the gross rent amount at the applicable rate — default or DTAA-reduced.

Step 4 — Deduct TDS from rent payment
Before paying rent to you — or to the management account — the tenant deducts the TDS amount. The net rent (after TDS) is paid. The deducted TDS is retained by the tenant temporarily.

Step 5 — Deposit TDS with government
The tenant deposits the deducted TDS with the government using Challan 281 — by the 7th of the following month for non-government deductors. TDS deducted in March must be deposited by 30th April.

Step 6 — File TDS return — Form 27Q
Quarterly TDS returns for payments to non-residents are filed using Form 27Q. The quarters are:

  • April to June — due 15th July
  • July to September — due 15th October
  • October to December — due 15th January
  • January to March — due 15th May

Step 7 — Issue Form 16A to NRI landlord
After filing the quarterly return, the tenant generates and issues Form 16A — the TDS certificate — to you. Form 16A is generated from the TRACES portal and shows the TDS deducted, deposited, and the relevant PAN details.

Forms Involved — Challan 281, Form 27Q, Form 16A

Challan 281

Challan 281 is the payment challan used to deposit TDS with the government. The tenant uses this challan to pay the deducted TDS to the bank, which credits it to the government’s account. The challan has a specific code for TDS on non-resident payments under Section 195.

The challan acknowledgement is retained by the tenant as proof of TDS deposit. It is also needed for filing the TDS return.

Form 27Q

Form 27Q is the quarterly TDS return for tax deducted on payments made to non-residents other than salary. The tenant files this return quarterly showing:

  • Details of the deductor — tenant’s TAN, PAN, name, address
  • Details of the deductee — your PAN, name, country of residence
  • Nature of payment — rental income under Section 195
  • Amount paid and TDS deducted each quarter
  • Challan details

The tenant must obtain a Tax Deduction Account Number — TAN — to file TDS returns. A tenant who has never deducted TDS before will need to register for a TAN before filing their first Form 27Q.

Form 16A

Form 16A is the TDS certificate issued to the deductee — you, the NRI landlord. It is generated from the TRACES portal after the quarterly TDS return is filed and processed. It shows:

  • Name and TAN of the deductor — your tenant
  • Your name and PAN
  • Nature of payment — rental income
  • Amount of payment — quarterly
  • TDS deducted and deposited

Form 16A is the document you use to claim TDS credit in your Indian income tax return. Without it, you cannot claim the credit — meaning you may pay tax again on income that was already taxed at source.

Form 16A must be issued within 15 days of the due date for filing the quarterly TDS return — meaning you should receive it four times a year.

What the NRI Landlord Receives — and Must Do

What you receive from a compliant tenant:

  • Net rent — gross rent minus TDS deducted — credited to the management account monthly
  • Form 16A — quarterly, generated from TRACES, showing TDS deducted and deposited

What you must do with Form 16A:

  • Provide it to your CA in India
  • Your CA uses Form 16A to claim TDS credit in your annual Indian income tax return
  • The TDS credit reduces your tax liability — the tax already deducted at source is set off against the tax computed on your income

What happens if your actual tax liability is lower than TDS deducted:

If the TDS deducted at the default rate — 30% plus cess — is higher than your actual tax liability after accounting for deductions, you are entitled to a refund of the excess. This refund is claimed in your annual income tax return and processed by the Income Tax department. Having a CA file your return correctly is essential to claiming this refund.

What you must provide to your tenant:

  • Your Indian PAN — essential for TDS return filing
  • Tax Residency Certificate — if claiming DTAA benefit, annually
  • Form 10F — if claiming DTAA benefit, filed on Income Tax portal

DTAA Benefit — Reducing the TDS Rate

The process for claiming DTAA benefit on TDS is specific and requires annual action.

Tax Residency Certificate

A Tax Residency Certificate is issued by the tax authority of your country of residence confirming that you are a tax resident of that country. It is required to claim treaty benefits under any DTAA.

  • USA: Certificate of Residency — Form 6166, issued by the IRS
  • UK: Certificate of Residence — issued by HMRC
  • UAE: Tax Residency Certificate — issued by the UAE Federal Tax Authority
  • Australia: Certificate of Residency — issued by the ATO
  • Canada: Certificate of Residency — issued by the CRA
  • Singapore: Certificate of Residence — issued by IRAS

The TRC must be for the relevant financial year. It is an annual document — a TRC for one year cannot be used for the next year. Provide the current year’s TRC to your tenant before the first rent payment of each financial year.

Form 10F

Form 10F is a self-declaration filed on the Income Tax department’s e-filing portal. It contains specific information required for DTAA benefit claims — your tax identification number in your country of residence, your status, the period of residential status, and your address abroad. Form 10F is filed annually on the portal and the acknowledgement is provided to your tenant along with the TRC.

After Providing TRC and Form 10F

Once you provide these documents to your tenant, they deduct TDS at the applicable DTAA rate — which is typically lower than 30%. The difference between the default rate and the DTAA rate is money that stays with you rather than being deducted and later claimed as a refund. Claiming a refund takes time and requires a correctly filed income tax return — paying the lower rate from the start is more efficient.

Lower Deduction Certificate — Section 197

Where your actual tax liability on rental income is lower than the TDS that would otherwise be deducted — even at the DTAA rate — you can apply for a Lower Deduction Certificate under Section 197 of the Income Tax Act.

When Section 197 is useful:

  • Where you have significant deductions available against rental income — home loan interest, standard deduction — that reduce your net taxable income substantially
  • Where the combination of deductions and basic exemption means your effective tax rate is significantly lower than the TDS rate

How to apply:

An application is filed on the Income Tax portal — Form 13 — with details of expected income, deductions, and tax liability. The assessing officer issues a certificate specifying the lower rate at which TDS should be deducted.

The certificate is provided to your tenant, who then deducts at the lower certified rate instead of the default or DTAA rate.

Practical consideration:

Section 197 certificates are granted based on the Income Tax officer’s assessment of your claimed income and deductions. They are not automatically issued. A CA with NRI taxation experience should assess whether applying for a Section 197 certificate makes sense for your specific situation and handle the application.

What Happens When Tenant Does Not Deduct TDS

This is the situation that most NRI landlords with informal arrangements are currently in — full rent being paid without TDS deduction. Understanding the consequences is important.

Consequences for the tenant:

A tenant who fails to deduct TDS as required under Section 195 is treated as an assessee in default under Section 201 of the Income Tax Act. The consequences are:

  • Tax liability: The tenant is liable to pay the TDS amount that should have been deducted, with interest
  • Interest under Section 201(1A): Interest at 1% per month for the period from the date TDS should have been deducted to the date of actual deduction, and 1.5% per month from the date of deduction to the date of deposit
  • Penalty: Under Section 271C, a penalty equal to the amount of TDS not deducted can be imposed
  • Disallowance of expense: Under Section 40(a)(i), where a business entity fails to deduct TDS on payments to non-residents, the payment may be disallowed as a business expense in the payer’s hands

Consequences for the NRI landlord:

A common misconception is that the NRI landlord has no liability if the tenant fails to deduct TDS. This is not entirely correct.

Under Section 191 of the Income Tax Act, where TDS has not been deducted, the Income Tax department can demand the tax directly from the payee — you, the NRI landlord — as if no TDS obligation existed. You are still liable for the tax on your rental income regardless of whether the tenant deducted it.

The practical consequence: you receive full rent, pay income tax on it in your annual return, and the tenant also faces penalties and interest for non-deduction. Both parties suffer from non-compliance — you lose the time-value and efficiency of withholding tax, and the tenant faces penalties.

What should happen when past non-deduction is discovered:

Past non-deduction is a situation that requires CA advice specific to your circumstances — how many years, what amounts, what the tenant’s current position is. Options typically include:

  • The tenant deposits outstanding TDS with applicable interest and files belated TDS returns
  • The NRI landlord ensures their income tax returns for the relevant years correctly declare the rental income and pay the applicable tax
  • DTAA documentation is provided going forward to reduce future TDS rates

How This Management Arrangement Handles TDS

TDS compliance for NRI rental income is addressed at the tenancy documentation stage — not discovered as a problem after years of non-compliance.

At tenancy setup:

The Leave and License Agreement acknowledges the tenant’s TDS obligation under Section 195. The tenant is informed in plain language — before signing — that they are required to deduct TDS from each rent payment. Your PAN is provided to the tenant for TDS filing purposes.

If you have DTAA documentation — TRC and Form 10F — it is provided to the tenant at this stage.

At each rent receipt:

We confirm whether the rent received is net of TDS — meaning TDS has been deducted — or gross. If gross rent is received without TDS deduction, a written reminder is sent to the tenant citing their Section 195 obligation.

Quarterly:

We follow up with the tenant on Form 27Q filing and request confirmation that TDS has been deposited for the quarter.

Annually:

We follow up with the tenant for Form 16A — the TDS certificate. Form 16A is forwarded to you and to your CA for income tax return filing.

In the monthly report:

TDS status — whether TDS is being deducted, whether Form 16A has been received — is included in the monthly report. You are not left to discover at year end that your tenant has not been deducting TDS for twelve months.

TDS vs Advance Tax — Understanding the Difference

NRI landlords sometimes confuse TDS and advance tax. They are different obligations.

TDS — Tax Deducted at Source:
Deducted by the tenant from rent payments. The tenant’s obligation. Deposited monthly by the tenant. Evidenced by Form 16A. Claimed as credit in your income tax return.

Advance Tax:
Your obligation as the taxpayer. Where your total tax liability for the year exceeds ₹10,000 and is not fully covered by TDS, you are required to pay advance tax in installments during the financial year. For NRI landlords, advance tax is relevant where:

  • The tenant is not deducting TDS — in which case the full tax must be paid by you as advance tax
  • The tenant is deducting TDS at a lower DTAA rate but your total tax liability is higher than the TDS — you pay the difference as advance tax

Advance tax due dates for NRIs are the same as for residents:

  • 15th June: 15% of estimated annual tax
  • 15th September: 45% of estimated annual tax
  • 15th December: 75% of estimated annual tax
  • 15th March: 100% of estimated annual tax

Your CA advises on whether advance tax is applicable and in what amounts for your specific situation.

Common Mistakes

1. Assuming Section 194I — not Section 195 — applies
Section 194I applies to TDS on rent paid to resident Indians. Section 195 applies to payments to non-residents. The threshold in Section 194I — ₹2.4 lakhs per year — does not apply under Section 195. NRI landlords and their tenants who assume the Section 194I framework applies are operating under the wrong legal provision.

2. Not providing PAN to the tenant
Without PAN, TDS is deducted at 20% under Section 206AA — which may be higher than the applicable rate with PAN. More importantly, without correct PAN details in the TDS return, Form 16A cannot be correctly generated, and you cannot claim the TDS credit in your income tax return.

3. Not providing TRC and Form 10F annually
The Tax Residency Certificate is an annual document. A TRC provided three years ago does not support DTAA benefit claims for the current year. NRI landlords who provided TRC once at the start of the tenancy and assumed it covers subsequent years are allowing their tenant to deduct at the default 30% rate when the DTAA rate is lower.

4. Not following up on Form 16A
Form 16A is required to claim TDS credit in your income tax return. Many NRI landlords do not follow up with their tenant for Form 16A — and then their CA cannot correctly file the income tax return, or the TDS credit cannot be claimed. Following up for Form 16A quarterly is a specific obligation under this management arrangement.

5. Receiving full rent and assuming TDS compliance is only the tenant’s problem
As explained above, the Income Tax department can demand tax directly from the NRI landlord where TDS has not been deducted. Receiving full rent without TDS deduction is not a windfall — it is deferred tax liability.

6. Not filing Indian income tax returns because TDS has been deducted
TDS deduction does not eliminate the requirement to file an income tax return in India. If your Indian income exceeds the basic exemption limit, filing is required regardless of TDS. The return is also necessary to claim a refund if TDS was deducted at a higher rate than your actual tax liability.

7. Confusing TDS obligation with income tax filing obligation
The tenant’s TDS obligation and your income tax return filing obligation are separate. The tenant deducts and deposits TDS — that is their obligation. You file an income tax return, declare your rental income, claim TDS credit, and pay any additional tax or claim refund — that is your obligation. Neither obligation substitutes for the other.

Frequently Asked Questions

1. My tenant is an individual renting my flat for residential use. Are they really required to deduct TDS?

Yes. Section 195 applies to all persons making payments to non-residents — including individual tenants. The exemption that applies to individual tenants under Section 194I — which exempts them from TDS on rent paid to resident Indians — does not apply to Section 195. An individual tenant paying rent to an NRI landlord at any amount is required to deduct TDS under Section 195.

2. My tenant says they do not have a TAN and cannot deduct TDS. What should they do?

A TAN — Tax Deduction Account Number — is required to deposit TDS and file TDS returns. A tenant who does not have a TAN must apply for one before deducting TDS. TAN application is made online through the NSDL portal — Form 49B. The process is straightforward and typically takes 7-10 working days. The tenant cannot use their PAN as a substitute for TAN in TDS filings.

3. I want my tenant to deduct TDS at a lower rate. What do I need to provide?

You need to provide: a valid Tax Residency Certificate from your country of residence for the current financial year, and Form 10F filed on the Income Tax portal for the current year. With these documents, your tenant deducts TDS at the applicable DTAA rate. Alternatively, you can apply for a Lower Deduction Certificate under Section 197 — which may result in an even lower rate depending on your specific tax position.

4. The tenant has been deducting TDS but not giving me Form 16A. How do I get it?

Form 16A is generated from the TRACES portal — www.tdscpc.gov.in — after the tenant files their quarterly TDS return. If the tenant has filed their Form 27Q return, they can generate Form 16A from TRACES and provide it to you. If they have not filed their return, Form 16A cannot be generated. A formal written demand to the tenant for Form 16A — citing the statutory requirement — is the first step. Under this management arrangement, we follow up for Form 16A quarterly and escalate formally if not received.

5. Can I check whether my tenant has actually deposited the TDS they deducted?

Yes. You can check TDS deposited against your PAN on the TRACES portal using your Income Tax login. The Form 26AS — now called the Annual Information Statement — shows all TDS deposited against your PAN. If your tenant claims to have deducted and deposited TDS but it does not appear in your Form 26AS / AIS, the TDS has either not been deposited or the tenant has filed their return with an error in your PAN. Both situations require follow-up with the tenant.

6. My tenant deducted TDS at 30% for three years before I provided my TRC. Can I claim a refund of the excess TDS?

The excess TDS — the difference between what was deducted at 30% and what would have been deducted at the DTAA rate — can be claimed as a refund through your annual income tax returns for the relevant years. The refund is the difference between the TDS deducted and your actual tax liability for each year. Belated filing of income tax returns may be required for years where returns were not filed. Your CA in India should assess the refund position for each relevant year and file the returns accordingly.

7. What happens if the tenant deducts TDS but deposits it late?

Late deposit of TDS by the tenant attracts interest under Section 201(1A) — at 1.5% per month from the date of deduction to the date of deposit. This interest liability falls on the tenant — not on you. However, late deposit also means the TDS does not appear in your Form 26AS promptly, which can delay your income tax return filing and refund claim. We follow up with the tenant on timely deposit as part of the TDS compliance monitoring.

8. I am receiving rent from a commercial property in Pune — not residential. Does TDS work differently?

The TDS obligation under Section 195 applies to all payments to non-residents that are chargeable to tax in India — including commercial property rental income. The tax treatment of commercial rental income in your hands may differ from residential rental income in some respects — but the tenant’s obligation to deduct TDS under Section 195 is the same. The applicable rate and DTAA position should be confirmed with your CA.

9. My tenant is a large IT company. Surely they know about TDS — why haven’t they been deducting it?

Large companies generally have finance and compliance teams that are aware of TDS obligations. However, awareness of TDS on payments to NRI landlords is less universal than awareness of TDS on payments to resident landlords. Some companies treat NRI landlords the same as resident landlords — applying Section 194I rather than Section 195. This is an error. When the tenancy agreement is executed under this management arrangement, the NRI status of the landlord and the applicable TDS provision — Section 195 — is specifically brought to the corporate tenant’s attention in writing, with the required PAN and DTAA documentation.

10. If I sell my Pune property, does TDS apply to the sale proceeds as well?

Yes — and the TDS rate on property sale proceeds for an NRI seller is significantly higher than on rental income. Under Section 195, TDS on long-term capital gains from property sale by an NRI is 20% plus surcharge and cess on the sale consideration — not on the gain, but on the entire consideration. For short-term capital gains, the rate is 30% plus surcharge and cess. This means the buyer of your property is required to deduct a significant portion of the sale price as TDS before paying you. Lower deduction certificates under Section 197 are commonly used for property sales to reduce the TDS burden. This is covered in detail on the Selling NRI Property page.

Areas We Cover in Pune

This service covers the entire Pune PMC and PCMC area. Properties in gram panchayat areas or outside Pune district are not covered.

Localities we regularly serve: Kothrud, Aundh, Baner, Bavdhan, Pashan, Wakad, Hinjewadi, Viman Nagar, Kalyani Nagar, Koregaon Park, Hadapsar, Kondhwa, Undri, Karve Nagar, Shivajinagar, Deccan, Erandwane, Camp, Pimpri-Chinchwad, Talegaon Dabhade, Lonavala and surrounding areas within PMC/PCMC limits.

Contact

Advocate Ketan Palshikar
Property Lawyer and Property Manager, Pune

14, Eiffel Square, 1530, Sadashiv Peth, Off Tilak Road, Pune – 411030

Phone / WhatsApp: +91 9325624069
Email: palshikar.ketan@gmail.com
Website: palshikarlegal.in

If your tenant has not been deducting TDS and you want to understand the compliance position and how to address it going forward, contact us for an initial assessment.

Your property. Our legal responsibility.

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