TDS Rules for NRI Payments You Must Know

When we hear ‘TDS’ (Tax Deducted at Source), most of us assume it’s something businesses or salaried employees deal with. But what many don’t realise is that even ordinary individuals, especially those transacting with Non-Resident Indians (NRIs), can be liable to deduct TDS.

Whether you are renting a flat from an NRI or buying property from one, there are specific rules that you must follow. And if you don’t, it can lead to unexpected penalties, interest, and tax notices.

Let’s simplify the key rules so you can stay on the right side of the law.

TDS on Rent Paid to an NRI Landlord

If your landlord is an NRI, you are mandatorily required to deduct 30% TDS on the rent every month, irrespective of how much the rent is.

This falls under Section 195 of the Income Tax Act, which deals with payments to non-residents. Unlike resident landlords, where TDS applies only if the rent exceeds ₹50,000 per month, there’s no threshold in the case of NRIs. Even if the rent is ₹15,000, TDS still applies.

What You Need to Do:

• Apply for a TAN (Tax Deduction Account Number).

• Deduct 30% of the rent as TDS before making the payment.

• Deposit the TDS with the government by the 7th of the following month.

• File TDS return in Form 27Q every quarter.

• Issue Form 16A to the NRI as proof of deduction.

TDS on Purchase of Property from an NRI

This is even more tightly regulated. If you're buying a property from an NRI, you're required to deduct TDS on the entire sale value, not just the capital gains portion.

• If the sale results in long-term capital gains, the TDS is generally 20%.

• For short-term gains, it can go up to 30% or more, especially after surcharge and cess.

Important:

The ₹50 lakh threshold (which applies to resident sellers under Section 194-IA) does not apply here. Even if you’re buying a flat worth ₹30 or ₹40 lakh from an NRI, TDS must be deducted.

Steps for the Buyer:

• Get a TAN before making the payment.

• Deduct TDS on every installment if you're paying in parts.

• Deposit the deducted amount by the 7th of the next month.

• File TDS returns quarterly (Form 27Q).

• Provide Form 16A to the seller as a record of deduction.

What If You Don’t Comply?

Many buyers and tenants skip these steps unknowingly, and the consequences can be expensive.

Here's what the Income Tax Department can charge you:

• 1% per month interest if TDS is not deducted.

• 1.5% per month interest if TDS is deducted but not deposited.

• ₹200 per day penalty for late filing of TDS returns (subject to TDS amount cap).

• Additional discretionary penalties or disallowance of expenses during assessments.

In rare cases where TAN is not required, you can use a challan-cum-statement (Form 26QB/26QC equivalent), but that’s typically more relevant for resident transactions.

Don’t Miss the TDS

The government’s intent is clear, any income earned by an NRI from Indian sources must not go untaxed. That’s why the onus is on the payer (you, the buyer or tenant) to deduct and deposit the tax.

If you're dealing with an NRI, whether it’s rent, property purchase, or any other payment, it’s worth taking the time to understand these obligations. A small step now can save you from hefty penalties, stressful notices, and even future complications in getting loans or selling the property.

When in doubt, speak to a tax advisor or CA, but don't ignore TDS.

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