The rule in one paragraph
When rent is paid to a landlord who is a non-resident under Indian tax law, the tenant must deduct tax at source (TDS) at 30% plus a 4% health and education cess — an effective 31.2% — before paying the rent. This was Section 195 of the Income-tax Act, 1961; under the Income-tax Act, 2025, which took effect on 1 April 2026, the same obligation now lives in Section 393. Unlike the rules for resident landlords, there is no minimum threshold: the obligation applies from the first rupee of rent, whether the rent is ₹10,000 a month or ₹10 lakh.
Resident landlord vs NRI landlord: two different worlds
| Resident landlord | NRI landlord | |
|---|---|---|
| Governing provision | S.194-I / 194-IB (1961 Act) | S.195 (1961 Act) → S.393 (2025 Act) |
| TDS rate | 2–10% depending on case | 30% + cess = 31.2% (plus surcharge at high rents) |
| Threshold | Yes — small rents exempt | None. Applies from ₹1 |
| Who deducts | Tenant (individuals often exempt below threshold) | Every tenant, always |
| TAN required | Not for 194-IB individuals | Yes — tenant must obtain a TAN |
| Return form | 26QC (194-IB) | Form 27Q, quarterly |
The single most common mistake: a tenant googles "TDS on rent", finds the resident-landlord rules with their comfortable thresholds, and concludes nothing applies. Residency of the landlord — not the location of the property — decides which regime you are in.
What the tenant must actually do, step by step
- Confirm the landlord's tax residency in writing. If the landlord spent fewer than 182 days in India in the financial year (or otherwise fails the residency test), treat them as a non-resident.
- Obtain a TAN (Tax Deduction and Collection Account Number) — a one-time online application on the income-tax portal. A PAN is not enough for this; deducting under this provision requires a TAN.
- Deduct 31.2% from every rent payment before transferring the balance to the landlord.
- Deposit the deducted tax with the government by the 7th of the following month, using the TAN.
- File Form 27Q every quarter, reporting the deduction against the landlord's PAN.
- Issue Form 16A (the TDS certificate) to the landlord each quarter, so the landlord can claim credit in their Indian return.
The 31.2% is usually too much — and there is a legal fix
Here is the part almost nobody tells NRI owners: 31.2% is deducted on the gross rent, but your actual Indian tax liability on rental income is calculated on a much smaller base. The law allows a 30% standard deduction on the annual value, plus a deduction for municipal taxes paid, plus interest on any home loan. For many owners the true liability works out far below what the tenant is forced to deduct.
The fix is a lower or nil deduction certificate (Section 197 under the 1961 Act; the equivalent mechanism continues under the 2025 Act). The landlord applies to the Assessing Officer with a projection of actual income; if granted, the certificate instructs the tenant to deduct at the lower certified rate instead of 31.2%. Without it, your money sits with the tax department until you file a return and wait for the refund — often more than a year of dead capital.
- Apply early in the financial year — the certificate operates prospectively, not retroactively.
- The certificate is specific to the tenant and the payment, so a new tenancy needs a fresh certificate.
- Keep the certificate on the rent file; the tenant quotes it in Form 27Q.
What happens when nobody deducts (the common reality)
In most informal tenancies of NRI-owned flats, no TDS is ever deducted. The consequences accumulate quietly. The tenant is treated as an "assessee in default": liable for the tax not deducted, plus interest at 1–1.5% per month, plus a penalty that can equal the tax amount, and a fee of ₹200 per day for late filing of Form 27Q. The landlord, meanwhile, often hasn't filed Indian returns at all — which becomes a serious problem at the exact moment the owner needs a clean tax trail: selling the property, applying for a lower-TDS certificate on the sale, or repatriating funds abroad with a CA certificate.
The Income-tax Act 2025: what changed on 1 April 2026
India replaced the Income-tax Act, 1961 with the Income-tax Act, 2025, effective 1 April 2026. For NRI rent TDS the substance is unchanged — same rate, same no-threshold rule, same tenant obligation — but the section numbers moved. Payments to non-residents, previously Section 195, now fall under Section 393 of the new Act. Older articles, rent agreements, and even some bank checklists still cite 1961-Act sections; both numbering systems will circulate for years, so quote the new section with the old one in brackets.
Where a property manager fits in
Vasaaya does not give tax advice and never holds your money. What we do is keep the record straight so your CA's job takes hours, not weeks: a clean month-by-month rent ledger, TDS deduction status tracked per payment, Form 16A copies filed in your document vault, and a reminder before every quarterly deadline. When you eventually sell or repatriate, the paper trail already exists.
Frequently asked questions
What is the TDS rate on rent paid to an NRI landlord in 2026?
30% plus 4% health and education cess — an effective 31.2% of the gross rent. A surcharge applies on top at very high rent levels. There is no minimum threshold: the tenant must deduct from the first rupee.
Which section governs TDS on rent to an NRI — 195 or something new?
Until 31 March 2026 it was Section 195 of the Income-tax Act, 1961. From 1 April 2026, under the Income-tax Act 2025, the same obligation falls under Section 393. The substance of the rule is unchanged.
Does the tenant really need a TAN just to pay rent?
Yes. Deducting TDS on a payment to a non-resident requires the tenant to obtain a TAN, deposit the tax monthly, and file Form 27Q quarterly. The simplified PAN-based route available for resident landlords does not apply.
My tenant has never deducted TDS. Who is in trouble — me or them?
Primarily the tenant, who is treated as an assessee in default and owes the tax, interest, and penalties. But the landlord suffers too: no TDS credit trail, unfiled returns, and friction when selling or repatriating. Regularising voluntarily with a CA is almost always cheaper than waiting.
How do I avoid losing 31.2% of my rent to TDS?
Apply for a lower or nil deduction certificate from the Assessing Officer (the Section 197 mechanism). It certifies your realistic tax liability — after the 30% standard deduction, municipal taxes, and home-loan interest — and instructs your tenant to deduct at that lower rate.
Is TDS still required if the rent is paid into my NRO account in India?
Yes. The deciding factor is the landlord's tax residency, not where the money lands. Rent credited to an NRO account of a non-resident is still subject to the 31.2% deduction by the tenant.
Can the NRI landlord just pay the tax themselves instead?
The landlord filing a return does not extinguish the tenant's deduction obligation. The law places the mechanical duty on the payer. In practice, if the landlord has paid the tax, the tenant's exposure narrows to interest and penalties — but the clean route is deduction plus a lower-deduction certificate.
This guide is general information, not legal, tax, or financial advice. Rules change and your situation is specific — always confirm with a chartered accountant or lawyer before acting. Figures reflect the law as of the date shown above.
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