What should be done if you fail to deduct tax on rent paid to an NRI?
2 min read 27 Jul 2023, 10:30 PM ISTIt is the payer’s obligation to effect TDS on the taxable income of the non-resident and deposit the same with the income tax department. In case of non-compliance, the payer will be liable for penal consequences.
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My landlord is a non-resident Indian (NRI). I have already paid him the house rent for April and May by cheque but did not deduct tax at source. What should I do now?
—Name withheld on request
Under India’s income tax laws, if the payee qualifies as non-resident in India during the relevant financial year, the payer is required to effect TDS (tax deducted at source) at a specified rate (plus applicable surcharge and health and education cess) on taxable income of the payee. In case of rental income, the specified rate is 30% (plus applicable surcharge and health and education cess).
It is the payer’s obligation to effect TDS on the taxable income of the non-resident and deposit the same with the income tax department. In case of non-compliance, the payer will be liable for penal consequences.
If the non-resident owner’s total taxable income (including rental income) in India is below ₹2.5 lakh, there is arguably no requirement for TDS on the rental amount. However, the tenant is unlikely to know the total taxable income of the owner and so may have to deduct tax unless the owner furnishes a lower or nil TDS certificate obtained from the income tax officer.
In this case, the tenant may withhold TDS for April and May from the rent payable for the latest month and deposit the same with the income tax authorities at the earliest along with interest for late deposit of TDS at 1.5% per month.
Apart from depositing TDS on a monthly basis, the tenant is required to file a quarterly withholding tax return in Form 27Q (reporting the rent amount paid and TDS deposited every month) and issue withholding tax certificate (Form 16A) on a quarterly basis to the owner.
I am a seaman who stays outside India for more than six months. I have been transferring money to my wife’s account and from there investing in stocks and mutual funds. What are the tax implications due to this?
- Name withheld on request
If any asset is transferred directly or indirectly without adequate consideration (such as gift) by an individual to the spouse, the income from such asset will be taxable in the hands of the individual. Exception is available if the transfer is in connection with an agreement to live apart or at fair value.
If you transfer money to your wife’s account, without any obligation on your wife to repay such amount, then any taxable income earned by her from investments out of such non-refundable amount will be taxable in your hands.
Thus, the income earned from stocks and mutual fund investments in India will be taxable in your hands if the investments are held in your name. However, if the investments are made in your wife’s name under circumstances as indicated above, the income from such investments will be still taxable in your hands in India due to clubbing provisions.
Sonu Iyer is tax partner and people advisory services leader, EY India.
