Non-Resident Indians often let out their residential and commercial properties in India on rents. NRIs and OCIs who rent their immovable property in India must be aware of two basic tax information – income tax and Goods and Service Tax. In this article, we will delve deep into TDS and GST registration for NRIs renting immovable property in India.
GST Registration for NRI
As per Section 24 of the CGST Act, a non-Resident taxable person (NRTP) is required to register for GST number in India without any threshold limit, to conduct any transactions involving the supply of goods and services in India. Any non-resident who falls in NRTP category is required to apply for GST registration for NRIs, irrespective of number of transactions – one time or frequent taxable transactions.
GST for NRIs Renting Immovable Property in India
Goods and Services Tax (GST) in India does not apply to residential properties for renting purposes, irrespective of whether the owner is an NRI (Non-Resident Indian) or a resident Indian.
If an NRI rents his immovable property in India for commercial/ business purposes, the GST provision shall be applicable on that transaction. In other words, if the NRI is earning a rental income from a commercial property in India, GST applies if the annual rent exceeds Rs. 20 lakhs. The GST is charged at an 18% rate on such commercial rent. Let’s understand it with an example.
Arun Arora is an NRI and he owns a commercial property in India. He rented out this property to a company for Rs. 30 lakhs per annum. Since this annual rent exceeds the GST threshold limit of Rs. 20 lakhs, Arun is required to register for GST.
The GST he would have to collect and deposit would be 18% of the rental income, which in this case would be 18% of Rs. 30 lakhs = Rs. 5.4 lakhs.
So, the company to which he rented his commercial property would pay him Rs. 30 lakhs as rent plus Rs. 5.4 lakhs as GST. Arun, in turn, would deposit the Rs. 5.4 lakhs GST with the Indian government.
How can NRI Pay GST
A Non-Resident taxable person (NRTP) needs to complete the following steps to pay GST for renting immovable property in India:
- The NRI property owner needs to register for the GST number in India.
- Raise GST invoice (rent + applicable GST) in the prescribed format.
- Collect GST from the tenant and deposit it with the government before 20th of the subsequent month.
- File form GSTR – 3B and GSTR – 1 on or before the due dates.
- Filing GSTR after the due date will attract penal provisions.
TDS for NRIs Renting Immovable Property in India
As per the tax rules, if an NRI rents out a property in India, the tenant is liable to deduct TDS at the rate of 31.20% (irrespective of the nature of the property i.e. residential or commercial) before making the rent payment to the NRI landlord. This TDS is then deposited with the government on behalf of the NRI.
The NRI can later claim credit for this TDS when filing their income tax return in India. Also, if the tax on total income of the NRI is less than the TDS deducted, the NRI can claim the excess amount as a refund. Let’s understand this with an example.
Suppose Rohit Ranjan is an NRI, and he rents out his residential property in Gurgaon, India for Rs. 50,000 per month, which totals to Rs. 6,00,000 per year.
The tenant would have to deduct TDS at the rate of 31.20% before making the rental payment to Rohit. This means, every month, the tenant would deduct TDS of Rs. 15,600 (31.20% of 50,000) and pay Rohit the balance Rs. 34,400. The TDS amount of Rs. 15,600 is then deposited with the government.
Over the year, the total TDS comes to Rs. 1,87,200 (15,600 * 12), which you can claim as a credit while filing your income tax return in India.
The process is as under –
- The tenant needs to obtain TAN (Tax Deduction Account Number)
- The he/she has to deduct TDS at 31.20% of the rent
- Deposit the TDS with the government on or before 7th of the subsequent month
- File eTDS return on every quarter
- Issue Form 16A to the NRI landlord
TDS on Sale of Property by NRIs
An individual who purchases a property from an NRI in India is required to deduct TDS from the payment to the seller. Rate of TDS on sale of property by NRI is higher as compared to rates applicable on property sold by a resident.
The buyer must deduct TDS at the time of payment to the NRI seller. This includes instances when payments are made in installments; in such cases, TDS should be deducted proportionally at the time of each payment.
NRI Income Tax Return Filing
The owner of the property i.e. NRI needs to file income tax return in India on or before 31st July of the financial year to claim credit for the TDS.
Lower TDS Certificate
NRI can apply for a Lower TDS Certificate to avail of TDS exemption from the income tax department. In this case, the NRI won’t have to pay a high tax rate as it will be reduced under the IT Act, 1961.
There are various ways to save income tax in India, but due to a complicated tax system and recurrent amendments, understanding tax laws can be confusing, especially for NRIs. NRIs may miss claiming deductions and other benefits.
At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing.