Can I deduct 30% TDS from rental income?

As a taxpayer, I have been declaring this rental income in India every year in my tax return. I am also declaring all sources of income and paying taxes regularly.

Do you think this arrangement is ok and can continue? Or should I deduct 30% TDS every month on behalf of the tenant and claim it later in the tax return?

—Name withheld on request

As per the IT Act, tenants have to deduct TDS @ 31.2% on rent paid to an NRI and deposit tax with the government.

There is no minimum limit for deduction of TDS on rent paid to NRIs. Tax should be deducted from the rent payable @ 31.2%. However, if your total income as a landlord is less than the taxable limit then you can apply for a certificate under section 197 for reduced TDS deduction. A certificate under section 197 for low TDS would require the deductor i.e. the tenant to deduct less TDS as per the order of the AO.

Note that if the tenant fails to deduct tax from the rent paid to the NRI landlord, a penalty equivalent to tax cannot be levied as per Section 271C of the IT Act. To comply with the requirements of the Income Tax Act, tenants have to obtain a TAN through the NSDL website.

After the TAN is received, the tenant can deduct the tax every month and pay the rest to the landlord.

TDS from rent paid in a calendar month should be paid by the 7th day of the next calendar month. There are penal consequences for not depositing TDS on time.

In the given situation it is not possible for the landlord to deduct TDS, the responsibility of compliance lies on the tenant. However, it is your responsibility to ensure that your income which is taxable in India is duly reported in your income tax return to be filed in India.

Archit Gupta is the founder and CEO of Clear.in.