NRI Rental Income and Advance Tax: What You Need to Know

Are you aware that under Section 195 of the Income Tax Act, tenants should deduct at prescribed rates and deposit with the tax authorities on a monthly basis? Are you aware tenants are supposed to obtain TAN? If not, read this article

NRI Rental Income

Non-resident Indians (NRIs) are subject to the same income tax laws as residents of India. This includes paying taxes on rental income that NRIs receive from properties in India. In particular, NRIs may be liable to pay advance tax on their rental income during the financial year. This article will provide an overview of the advance tax requirements for NRIs and explain how to pay advance tax on rental income.

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Non-Resident Indian with Nominal Rental Income: Can Advance Tax be Deposited Directly to Income Tax Department?

According to section 195 of the Income Tax Act, the tenant must deduct taxes from the rental income at the designated rates i.e Tax deducted at source or TDS and submit them to the tax authorities on a monthly basis. Additionally, the tenant must acquire a Tax Deduction Account Number (TAN) and file withholding tax returns for the taxes withheld and deposited on a quarterly basis.

If neither the tenant nor the Non-resident Indian (NRI) is in a position to comply with the requirements, the following alternatives may be considered:

If the non-resident Indian (NRI) is convinced that his/ her total income (including rental) justifies no deduction of tax, then s/he should approach the income tax authorities and receive a certificate for a ‘Nil’ deduction of income tax. On obtaining the certificate, either the tenant (tax deductor) will not require to hold back the tax amount on the rental income or would be required to hold back taxes at the reduced rate (as approved by income tax authorities). If the tenant does not abide by these regulations, they may be classified as ‘assessee in default’, and resultant penal provisions and interest may be applicable.

If the NRI files their ITR, declares the total income (including rental income) and pays applicable taxes through self-assessment/ advance tax and obtains a certificate from CA in the prescribed format, then the tenant will not be deemed as an ‘assessee in default’ and no penalties may be imposed upon evaluation by the assessing authorities.

Note: There are certain countries with whom Indian Government has signed the Double Tax Avoidance Agreement (DTAA). If an NRI resides in any of these countries, the rent earned by NRI from property located in India will not be taxable in that country.

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NRIs must comply with the Indian income tax laws in order to pay advance tax on their rental income. There are two primary options for NRIs to comply with these laws: either acquire a 'Nil' tax certificate from the income tax authorities or file their ITR, declare the total income, and pay applicable taxes in advance. Additionally, those NRIs who reside in a country with whom India has signed a DTAA may not be subject to any tax on their rental income in that country.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.


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