News: Why Tenants Back Out of NRI Rentals: 30% TDS Rule-08-05-2026

A Bengaluru landlord’s Reddit post about losing a confirmed tenant has drawn attention to the tax compliance that comes with renting from a non-resident Indian (NRI) owner.

The landlord wrote that everything had been agreed for his Bangalore flat when the tenant called back, said he would have to deduct 30% TDS on the rent and file it with the government himself, admitted he did not know how, and withdrew.

Tax experts said the provisions were brought in to improve reporting and plug leakages in rental income disclosure, but have become a point of friction in urban rental markets, especially where premium rentals are common.

Vivek Jalan, partner, Tax Connect Advisory Services LLP, said the framework has become considerably stricter under the Income Tax Act, 2025, in force from April 1, 2026. Rent from property in India is deemed to accrue or arise in India under Section 9(2)(b), so the tenant must deduct TDS when paying an NRI landlord. Such payments fall under the residual withholding category for non-residents.

Under the Act as amended by the Finance Act, 2026, he said, the rate is 30% plus applicable surcharge and cess, effectively 31.2% in most cases, and higher if the NRI’s annual income exceeds Rs 50 lakh. For resident landlords, 2% TDS under Section 194-IB applies only when rent exceeds Rs 50,000 per month. For NRIs there is no minimum threshold.

Relief is possible in some cases. If the NRI believes the actual tax liability would be lower, either party can approach the Assessing Officer under Sections 395(1) or 395(2) for a certificate of lower or nil deduction, Jalan said.

He described compliance as the biggest burden on the tenant. The tenant has to deposit TDS every month through the income tax portal using the applicable challan, file quarterly TDS statements in Form 144 for non-resident payments, and furnish remittance details in Form 145, where income from renting or leasing real estate is a specific reporting category. If taxable rent remittances exceed Rs 5 lakh in a financial year and no lower deduction certificate exists, an accountant’s certificate in Form 146 may also be needed. A TDS certificate in Form 131 must be issued to the landlord.

Common errors, tax professionals said, include deducting at the wrong rate, missing monthly deposit deadlines, not obtaining a TAN and filing incorrect forms. These can attract interest, late filing fees and penalties.

Jalan said the complexity has begun to affect transactions in premium markets such as Bengaluru, where many owners are NRIs, with tenants often pulling out once they understand the obligations, producing a "chilling effect" in high-value rentals. The law secures tax collection, he said, but deters deals where tenants are not equipped to comply.

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