Rent TDS on NRI Landlords: The 31.2% Trap and the Lower-TDS Fix

If you are an NRI letting a flat in India, the law tells your tenant to withhold 31.2% of your rent from the first rupee. Most tenants either cannot do it or refuse to, and the liability lands on you. One owner put it plain: "I thought the tenant miscalculated. The deduction was accurate." The number is not a mistake. It is the non-resident TDS rule working as written.

The 31.2% number, and where it comes from

Rent paid to an NRI landlord is taxed at source at 31.2%. That is 30% base tax on payments to non-residents, plus a 4% health and education cess on the tax. Thirty, plus 4% of thirty, is 31.2%. This rate holds when your total Indian income for the year stays under 50 lakh.

The rule lived in Section 195 of the Income-tax Act, 1961. The Income-tax Act, 2025 took effect on 1 April 2026 and moved it to Section 393(2). The mechanics did not change. The rate did not change. Older guides still say "Section 195", and the substance is the same.

Above 50 lakh, a surcharge stacks on the 30% before the cess, and the effective rate climbs:

Most owners letting one or two flats sit in the first band. So 31.2% is the figure to hold. It comes off gross rent, not rent after the standard 30% deduction and not rent after municipal taxes. Your actual tax on rental income, after the standard deduction under Section 24, runs far lower. The gap between what is withheld and what you owe is the cash that gets locked up.

There is no threshold. None.

This is the line owners miss. For a resident landlord, the tenant deducts only 2% under Section 194-IB, and only when monthly rent crosses 50,000. Rent of 45,000 a month to a resident: zero TDS. The same flat let by an NRI: 31.2% from rupee one.

The non-resident rule carries no exemption limit and no floor. As one CA framed it to an owner: "There is no exemption limit or minimum threshold. If a tenant is not deducting TDS, it is the landlord's responsibility." A tenant paying 25,000 a month to an NRI still has to withhold 31.2%. The amount saves no one. The residency of the landlord is the one fact that decides which rule applies, and the resident rent provisions step aside the moment the landlord is non-resident.

What the law puts on your tenant

Your tenant is the deductor. The compliance chain runs heavier than most tenants expect, and heavier than most will carry for a rented flat:

Miss the return and the late fee runs 200 a day under Section 234E, capped at the TDS amount, with further penalty exposure under Section 271H. A tenant who agreed to pay rent did not agree to become a withholding agent with a TAN and a quarterly filing calendar. Many never start. Some deduct and never deposit. Both land on you.

Form 15CA and 15CB: the remittance layer

Rent credited to an NRI is a remittance to a non-resident, so it draws a second set of forms on top of the TDS return. The tenant files Form 15CA on the income tax portal to report the remittance. When rent paid in a financial year crosses 5 lakh, the tenant also needs Form 15CB, a certificate from a chartered accountant confirming the deduction and the rate applied. Part C of Form 15CA is the part that pairs with a 15CB.

Most individual tenants have never heard of either form. This is one more reason the chain breaks. The honest read: a tenant paying rent to an NRI runs a compliance process built for company remittances abroad. Few do it without help.

The fix: a lower-deduction certificate (Form 128)

You do not have to leave 31.2% withheld all year. Apply for a lower-deduction certificate and the tenant deducts at the certified rate, not 31.2%. The route changed on 1 April 2026. The old Form 13 under Section 197 became Form 128 under Section 395 of the Income-tax Act, 2025. You file it online through TRACES. The Assessing Officer reviews your expected income and tax for the year and, if your real liability runs below 31.2% of gross rent, issues a certificate that sets the rate the tenant must deduct. That rate can fall into the single digits.

Your tenant then deducts at the certified rate. The money never leaves your pocket, so there is no refund to chase. This is the difference between getting it right at source and waiting months for the department to return your own cash after you file. A DTAA between India and your country of residence can lower the rate further, so claim it where it applies.

Two facts to plan around. The certificate is rate-specific and period-specific, so apply early in the financial year and renew each year. And the certificate fixes the rate the tenant uses. It does not remove the tenant's duty to hold a TAN, file Form 27Q, and issue Form 16A. The compliance still has to run. A lower rate stops the over-withholding, nothing more. For how the rent itself is taxed and what you can deduct, see NRI rental income tax in India.

If the tenant does not deduct, the bill comes to you

The law treats a deductor who fails to deduct or deposit as an assessee in default, and that is the tenant. But the tax on your rental income is yours. If the tenant deducts nothing, the income stays taxable in your hands, and you pay it when you file, plus interest on the shortfall. You cannot claim a credit the tenant never deposited. So the exposure splits: the tenant carries the penalty and interest for the default, and you carry the actual tax, often found a year late when your return does not reconcile.

This is why the rent has to land in the right place and the deduction has to show. Rent should be paid into your NRO account, and the TDS should appear in your Form 26AS against your PAN. If it does not show, it was not deposited, whatever the tenant told you. For how rent flows through an NRO account and what gets taxed there, see NRO account and rent taxation.

The proof to demand

Most NRI owners find the TDS problem the way they find every other remote-management problem: late, secondhand, after the money is gone. The defence is documentary. Demand it whether your manager is a company, a broker, or a relative:

If a manager or tenant cannot produce these, the deduction is unverified, and unverified means you are the one exposed. For the wider playbook on running a tenancy from another country, see managing tenants from abroad.

FAQ

How much TDS is deducted on rent paid to an NRI? 31.2% on gross rent for an owner whose Indian income stays under 50 lakh: 30% base plus 4% cess. Above 50 lakh a surcharge raises it to 34.32%, then 35.88% over 1 crore, then 39% over 2 crore. There is no threshold. The deduction starts at the first rupee.

Does a tenant need a TAN to pay rent to an NRI? Yes. The tenant must obtain a TAN before deducting any TDS on rent to a non-resident. This differs from rent to a resident under Section 194-IB, which uses the tenant's PAN and needs no TAN. Without a TAN the tenant cannot deposit the tax or file Form 27Q, and the deduction has no valid path to your PAN.

What is Form 15CA for rent to an NRI landlord? Form 15CA is the tenant's online declaration that reports the rent as a remittance to a non-resident. It is filed on the income tax portal. When rent paid in a financial year crosses 5 lakh, the tenant also needs Form 15CB, a chartered accountant's certificate on the deduction. The two forms run alongside the TDS return, not instead of it.

How does an NRI get a lower TDS certificate on rent? File Form 128 online through TRACES under Section 395 of the Income-tax Act, 2025. This route replaced Form 13 and Section 197 on 1 April 2026. The Assessing Officer reviews your expected income and tax for the year and issues a certificate that sets the rate your tenant must deduct, often well below 31.2%. Apply early in the financial year and renew it each year, because the certificate is period-specific.

Is the landlord liable if the tenant does not deduct TDS? The tax on the rent is yours regardless. If the tenant deducts nothing, the income stays taxable in your hands and you pay it on filing, with interest on the shortfall, and you cannot claim a credit the tenant never deposited. The tenant carries the penalty for the default. You carry the actual tax. Insist on proof of deposit.

Get the deduction done right, with proof

66 MG Road runs one vetted manager per property, so a single person owns your tenancy and your compliance, not a rotating call centre. We send dated photo proof from every visit, itemized billing with vendor receipts at actuals, and rent paid straight into your NRO account. We track that the tenant's TDS is deducted, deposited, and visible in your Form 26AS, and we coordinate the Form 128 route when a lower rate is yours to claim. We operate in Mumbai, Pune, Bangalore, Hyderabad, Chennai, and Gurgaon. See our services or request a proposal for your flat.

Saurabh Garg, founder, 66 MG Road

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