Rental payment to non-resident – Tax implications
Provisions of Income-tax Act, 1961 (“the Act”)
Any person responsible for paying to a non-resident, any other sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
Given the above, it is clear that the rental payment made to non-resident has to be tax deducted. The rate in force is 31.20%. For example if the rent is ₹10,000 TDS would be ₹3,120 and the payment would be ₹6,880.
Compliances
1. Tax deduction Account Number (TAN)
As per the Act, any person responsible to deduct taxes needs to obtain tax deduction account number (TAN). This can be done online through the NSDL website. Once the TAN number is issued, the tenant can deduct tax every month and pay it online. TDS needs to be paid by the tenant by the seventh of each calendar month, following the month in which tax is deducted
2. Filing of TDS returns
The tenant would have to file quarterly returns in form 27Q. The timeline for the same is tabulated below:
3. Submission of Form 15CA
A person making a remittance to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature and purpose of the remittance.
Form 15CB is not required when:
- Remittance does not exceed ₹5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.
(a) Section 195 of the Act
(b) Section 203A of the Act
- If lower TDS has to be deducted and a certificate is received under Section 197 for it or lower TDS has to be deducted by order of the AO.
- Neither is required if the transaction falls under Rule 37BB of the Act, where it lists 28 items. Check out the entire list here.
In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA’s certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.4. Penalty for non-compliances
- Failure for not obtaining TAN – Penalty of ₹10,000 could be imposed by the Assessing Officer
- Failure for non-deduction of TDS – interest of one percent per month from the date date on which tax was deductible to the date of actual deduction
- If a payer fails to pay the tax deducted to the credit of the Central Government, under the provisions of Chapter XVII-B, the payer shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.
- Non-filing of TDS returns – Penalty of ₹10,000 to maximum of ₹100,000.