Tax Query: TDS on rent not needed if NRI’s income is less than Rs 2.5 lakh

Mr Gupta’s son lives in Australia. He has signed a power of attorney in the name of his father to collect the rent from the property in India. Is the liability to deduct TDS arises from this income? Mr Gupta is 65 years old and the rent is Rs 12,000 per month. 

Any income in the form of rent from a house property situated in India will be taxable in the hands of the owner of the house property. The method of calculating taxable income from the house property is as follows: 

The gross annual value of the property will be reduced by the municipal taxes and the resulting amount will be net annual value. The NAV will be reduced by the standard deduction of 30% under section 24 of the Income Tax Act and interest on the housing loan to get the taxable income. The gross value will be higher of the expected rent and the actual rent received. 

One can also claim the principal amount of the home loan repaid during the year under section 80C, provided if the loan is taken from the eligible lenders. The maximum deduction available under section 80C is Rs 1.5 lakh in a financial year. 

Now assuming that Mr Gupta’s son is the sole owner of this house property, the rental income from such property is taxable in his hands. In the case of a resident landlord, the tenant is required to deduct tax at source at the rate of 10% from the rent paid to the landlord. Here are certain exceptions where tax is not required to be deducted: 

1. Where a tenant is an individual or a HUF but are not liable to tax audit under section 44AB in the FY
2. Where the rent paid or payable does not exceed Rs 2.4 lakh in an FY (the limit was Rs 1.8 lakh prior to FY 19-20)

Also Read: Tax query: ELSS or FD—Which is the Best Tax Saving Option under Section 80C?

However, in the case where the tenant is not subjected to tax audit under section 44AB, he will have to deduct 5% tax where the rent exceeds Rs 50,000 per month. If the landlord is a non-resident Indian, the tax will be deducted at the rate of 30% on the rent paid, provided the income is taxable in India. 

Assuming Mr Gupta’s son is an NRI for income tax purposes, there might be no requirement to deduct tax at source by the tenant, since the income is below the basic exemption limit of Rs 2.5 lakh. However, as the tenant doesn’t know the actual income of the son, he will have to deduct TDS unless he gets a lower or nil TDS certificate obtained from the tax office.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in