No TDS on Rent If NRI has Less Than 2.5 Lakh Taxable Income

Should an NRI deduct TDS on rent if his taxable income?

Yes, he has to pay because it is an income that he receives against his accommodation being on rent. Now, the question arises that should every NRI pay.

Here comes the challenge! The Income Tax of India states that the rental income contributes to the capital income of an immigrant from India. Hence, it is taxable. But, it is noteworthy that only those non-residents of India who have more than 2.5 lakh rental income, that is taxable for tenants to be deducted as a TDS on rent.

How can you compute taxable rental Income? 

Here is the prescribed method of computing taxable rental income under the income tax law:

Simply put, it is:

Net Annual Value= Gross Annual Value-Municipal Taxes

Upon computing this value, there occurs a standard deduction of 30% of the net annual value and interest on the housing loan. This deduction evaluates the taxable rental income. Also, the gross annual value should be the higher of these:

1. The amount at which the NRI’s property might reasonably be expected to be let out (It is the property  that the owner hands over its occupancy or usage to another person)
2. The rental income or receivable rental income

In short, the gross annual value compares what actual rental income you have received with the expected rental income of the property.

There is another aspect, i. e. the housing loan, which should be considered parallel to the aforementioned computation. If the non-resident repays the principal amount against the housing loan for acquiring the ownership of that property, would have a right to get a deduction on TDS under the Section 80C of the Income Tax Act.

While this calculation, the immigrant should remember that he is eligible for deduction worth INR 1.5 lakh to the max.

If it’s the case of a “resident” owner of the property, it is the tenant who is required to deduct TDS @ 10% on rent paid to the owner of that property. There are two exceptions in this case:

1. The tenant is an individual or HUF (Hindu Undivided Family), but he cannot undergo the tax audit under Section 44AB in the preceding financial year (FY)
2. The rent paid or payable is not more than 2.4 lakh per financial year

If the case is similar to aforementioned one, but the rent amount exceeds INR 50,000 per month, the TDS will be deducted at the rate of 5%.

On the flip side, the TDS rate goes up to 30% when it comes to compute the TDS on the non-resident’s rental income exceeding the requisite limit.  It includes applicable surcharge and education cess.

In the nutshell, the tenants of NRIs, who receive rental income below INR 2.5 lakh, are inarguable expelled   from the tax payers’ list.