Navigating the Indian taxation landscape can be challenging, especially for Non-Resident Indians (NRIs) who own property in India. Two key taxes that NRIs must understand when dealing with property in India are the Goods and Services Tax (GST) and Tax Deducted at Source (TDS). Let’s delve deeper into these taxes and their implications.
GST for Non-Resident Property Owners
GST Registration: If you're an NRI engaging in business activities in India or renting out commercial properties, it's imperative to register for GST. This applies irrespective of your revenue from these activities.
Residential vs. Commercial: GST does not apply to residential properties used for renting. However, for commercial properties, if your annual rental income exceeds Rs. 20 lakhs, you are required to charge 18% GST on the rent.
Example:
Suppose Priya, an NRI, owns a commercial space in India generating an annual rent of Rs. 25 lakhs. Since her income surpasses the Rs. 20 lakhs threshold, she must levy an 18% GST on the total rent, translating to an additional Rs. 4.5 lakhs in GST.
Step-by-Step Guide to Paying GST:
- Register for GST online to obtain a GSTIN.
- Include 18% GST in your rental invoices.
- Remit the collected GST to the government by the 20th of the following month.
- File your GST returns regularly through the GST portal.
TDS on Rental Income
- TDS Rate: If the property owner is an NRI, tenants are obligated to deduct 31.20% TDS from the rent.
- TDS Utilization: This deducted amount should be deposited with the Indian government. Fortunately, NRIs can claim this as a tax credit when filing their income tax returns.
Example:
Imagine Karan rents an apartment from an NRI for Rs. 40,000 monthly. He must withhold Rs. 12,480 (31.20% of Rs. 40,000) as TDS, leaving Rs. 27,520 to be paid to the landlord. This TDS is then to be deposited with the tax authorities.
Tenant’s Responsibilities for TDS:
- Obtain a Tax Deduction Account Number (TAN).
- Deduct 31.20% of the rent as TDS.
- Deposit this TDS with the government by the 7th of the next month.
- File the quarterly eTDS return.
- Provide the NRI landlord with a Form 16A as proof of TDS deduction.
TDS When Selling Property
For NRIs selling property in India, the buyer is required to deduct TDS at a higher rate compared to transactions involving resident sellers. This ensures part of the capital gains tax is collected upfront.
Detailed Guide Table for NRIs Renting Property
| Aspect | Requirement | GST Rate | TDS Rate |
|---|---|---|---|
| Renting Residential Property | No GST registration required | N/A | 31.20% |
| Renting Commercial Property | GST registration if income > Rs. 20 lakhs | 18% | 31.20% |
| Selling Property | Buyer to deduct TDS | N/A | Higher than for resident sales |
Key Takeaways
- GST: Mandatory for NRIs with commercial rental incomes exceeding Rs. 20 lakhs; 18% rate applies.
- TDS on Rent: Tenants must deduct 31.20% of the rent for NRIs and deposit it with the Indian government.
- Selling Property: TDS deduction rates are higher for property sales by NRIs compared to resident Indians.
Adhering to these taxation rules is crucial for NRIs to ensure compliance and avoid any legal issues. Always consider consulting with a tax professional to navigate these requirements effectively.
