Cross-Border Rentals: More Than Just Rent
In today’s globalised world, many resident Indians pay rent to Non-Resident Indian (NRI) landlords—whether for residential or commercial properties. These transactions, although domestic in appearance, are treated as cross-border remittances under both the Income-tax Act, 1961 and the Foreign Exchange Management Act (FEMA), 1999. This classification invokes critical tax compliance, even for salaried individuals.
This guide explains the TDS obligations, Form 15CA/15CB requirements, legal interpretations, case law, amendments, and practical tips—making it the most complete reference on the web.
Legal Basis: Why TDS on Rent Paid to NRI?
🔹 Income Deemed to Accrue in India – Section 9(1)(i)
“Income accruing or arising, whether directly or indirectly, through any property in India shall be deemed to accrue or arise in India.”
✅ Thus, even if the landlord is abroad, rent from Indian property is chargeable to tax in India.
🔹 Deduction Under Section 195: “Any Person Paying”
Section 195(1) mandates:
“Any person responsible for paying to a non-resident… any interest or any other sum chargeable under this Act shall, at the time of credit or payment… deduct income-tax thereon at the rates in force.”
🔸 “Any person” includes individuals—even if not carrying on business.
🔸 No monetary threshold or exemption exists under Section 195.
🔸 TAN is mandatory under Section 203A for TDS deduction.
Key Question: Is TDS Required for Rent Paid to NRI?
✅ Yes, irrespective of:
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The amount (even ₹1 is taxable under Section 195)
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Whether the tenant is salaried or non-business
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Whether rent is paid to an NRO/NRE account or foreign account
❗ TDS is not optional just because the tenant is not running a business or the funds are staying within India.
TDS Rate on Rent Paid to NRI
| Condition | Rate | With HEC (4%) | Section |
|---|---|---|---|
| NRI provides PAN, no DTAA | 30% | 31.20% | 195 + 194L |
| NRI doesn’t provide PAN (Old Position) | Flat 20% | 20.80% | Section 206AA |
| ✅ Post Amendment: No PAN but TRC + 10F + Address | As per normal (e.g. 30%) | 31.20% or DTAA rate | Sec 206AA (7), Rule 37BC |
| NRI claims DTAA benefit | 10% (e.g. with US) | 10.4% | Section 90(2) |
Amendment: PAN Not Mandatory (Section 206AA(7))
As per Finance Act, 2023, read with Rule 37BC:
PAN is not mandatory for NRIs, if:
Valid Tax Residency Certificate (TRC) is provided
Form 10F is submitted
Foreign address is declared
Therefore, TDS shall be deducted at the applicable treaty rate or domestic rate under Section 195—not at penal 20%—even if PAN is not furnished.
DTAA Benefit: When Can Lower TDS Apply?
Section 90(2) allows taxpayers to apply the more beneficial provisions between the Act and the applicable Double Taxation Avoidance Agreement (DTAA).
📌 Example – DTAA with USA:
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Article 6 (Income from Immovable Property)
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Article 12 (Royalties and Fees)
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Rent may be taxed in India, but subject to capped withholding (e.g., 10%).
🔖 Ensure availability of PAN, TRC, Form 10F, and DTAA declaration.
Is Form 15CA/15CB Required if Rent is Paid in India?
✅ Yes – Residential Status of Payee Governs
Form 15CA/CB is triggered when a payment is made to a non-resident—irrespective of whether the money goes to:
NRE or NRO account in India
Overseas bank account
Another account by landlord
CBDT Clarifications & Judicial Position:
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CBDT Circular No. 4/2009: TDS applies even if funds do not leave India.
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GE India Technology Centre v. CIT [(2010) 327 ITR 456 (SC)]: Tax deduction under Section 195 is required only when income is chargeable under the Act.
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Ajay Guliya v. ITO (2012): ITAT Delhi upheld TDS liability on individual tenant paying rent to NRI.
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Pilot v. ITO (2017) 82 taxmann.com 221: Confirmed Section 195’s applicability on individuals paying to NRIs.
Is Form 15CB Always Mandatory?
❌ No. Form 15CB is not required if:
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The cumulative payment to the NRI does not exceed ₹5,00,000 in a financial year
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The payment is covered under exemptions listed in Rule 37BB
✅ But in Rent Cases:
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Rent generally exceeds ₹5 lakh annually
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Form 15CB is usually required
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Form 15CB must be issued before submission of Form 15CA (Part C)
Step-by-Step Compliance Process
| Step | Description | Form / Requirement |
|---|---|---|
| 1️⃣ | Obtain TAN | Form 49B |
| 2️⃣ | Collect PAN, TRC, 10F from landlord | Rule 37BC |
| 3️⃣ | Get Form 15CB from CA (if > ₹5 lakh) | Rule 37BB |
| 4️⃣ | File Form 15CA (online, Part C) | Income Tax Portal |
| 5️⃣ | Deduct & pay TDS using Challan 281 | Within 7 days of month-end |
| 6️⃣ | Transfer net rent to landlord’s account | FEMA compliant |
| 7️⃣ | File TDS return (Form 27Q) quarterly | Rule 31A |
| 8️⃣ | Issue Form 16A to NRI | Within 15 days of 27Q filing |
Case Scenarios: Quick Reference
| Scenario | TDS Rate | Form 15CA/CB |
|---|---|---|
| NRI provides PAN, TRC, DTAA documents | 10% (if DTAA) | Yes, Form 15CB + CA |
| No PAN, but TRC + 10F + address provided | 31.20% | Yes, Form 15CB |
| No PAN, no TRC, no Form 10F | 20% under 206AA | Yes, Form 15CB |
| Rent ≤ ₹5L in FY | 31.20% | Only Form 15CA (Part A/B) |
| Transfer to NRO/NRE account in India | 31.20% or DTAA | Yes, still covered |
Compliance Tips & Common Mistakes
🔴 Mistakes
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Ignoring TDS liability due to tenant’s individual status
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Assuming NRO account = domestic payment
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Not applying for TAN
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Not securing TRC/Form 10F
✅ Tips
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Include TDS clause in rent agreement
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Prefer monthly Form 15CB for ease
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Educate landlord on DTAA to reduce tax burden
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Maintain all documentation to avoid being deemed “assessee-in-default”
FAQs
Q1: Is TDS required even if I’m a salaried tenant?
✅ Yes. Section 195 applies to “any person”—not just businesses.
Q2: Is Form 15CA/CB needed if payment is made to an Indian NRO account?
✅ Yes. Residential status of recipient governs applicability, not account location.
Q3: If I fail to deduct TDS, what are the consequences?
❌ Interest under Section 201(1A), penalty under Section 271C, and disallowance of expense if tenant is a business.
Q4: Can Form 15CB be issued one-time for annual rent?
✅ Yes, if properly explained and covering the whole period. Many CAs adopt this approach.
Conclusion: Be Informed, Be Compliant
Even simple-looking rent transactions with NRIs are governed by strict tax and FEMA frameworks. Non-compliance can result in penalties, interest, and being classified as assessee-in-default. Whether you're an individual tenant or an advisor, follow the law with clarity and diligence.
🔐 Remember: TDS under Section 195 is a statutory duty—not optional
💼 And Form 15CA/CB is not just for foreign transfers—it's for payments to non-residents.
