Most renters in India have heard that TDS on rent is 2%. That number is correct — but only if the landlord is a resident Indian. If the landlord is a Non-Resident Indian (NRI), a completely different rule applies, the rate is more than fifteen times higher, and the entire compliance burden lands on the tenant, not the landlord.
This is one of the most commonly missed rules in Indian rental housing, because nothing about signing a lease flags it. A tenant pays rent the same way whether the landlord lives in Mumbai or Melbourne — until an income tax notice arrives asking why TDS was never deducted.
The two rules, side by side
| Landlord status | Section | TDS rate | Minimum rent to trigger TDS | TAN required? |
|---|---|---|---|---|
| Resident Indian | 194-IB | 2% (20% if no PAN) | ₹50,000/month | No |
| NRI / Non-resident | 195 | 31.2% (30% + 4% cess) | None — applies from ₹1 | Yes, mandatory |
The rate difference alone — 2% versus 31.2% — is dramatic enough. But the structural differences matter just as much. Section 194-IB was designed for ordinary individual tenants: no TAN, a single annual filing via Form 26QC, and it only kicks in once rent crosses ₹50,000 a month. Section 195 was not written with convenience in mind. It applies from the first rupee of rent, with no threshold, and it requires the tenant to register for a TAN — the same registration a business uses to deduct tax at source — purely to rent a flat.
Why this gets missed so often
Tenants rarely know their landlord’s residency status. A property can be managed entirely by a local broker or a family member holding power of attorney, with rent paid into an Indian bank account that looks exactly like any resident’s account. Nothing on the lease or the payment receipt says “NRI.”
The 2024 rate cut to 194-IB created a false sense of simplicity. When the standard rate dropped from 5% to 2% in October 2024, it reinforced the assumption that 2% is simply “the TDS rate on rent” — full stop. Few tenants realize that cut applied only to the resident-landlord section, and that Section 195 was untouched.
The obligation falls on the tenant, with real penalties. Under Indian tax law, the person responsible for deducting TDS is liable if they don’t — not the landlord who received the rent. A tenant who underpaid TDS because they assumed 2% instead of 31.2% can be treated as “assessee in default” for the shortfall, with interest under Section 201(1A) and potential penalty, regardless of whether they knew the landlord’s residency status.
What a tenant renting from an NRI landlord actually has to do
- Apply for a TAN via the NSDL/Protean portal — a one-time registration a resident-landlord tenant never has to do.
- Deduct 31.2% of the rent every month before paying the landlord — from the very first payment, not just rent above ₹50,000.
- Deposit the TDS via Challan ITNS 281 by the 7th of the following month — monthly, not annually.
- File a quarterly TDS return (Form 27Q) and issue a TDS certificate (Form 16A) to the landlord.
- If rent is remitted abroad, Form 15CA is required for each remittance, and Form 15CB (CA-certified) once cumulative remittances cross ₹5 lakh in a financial year.
Confirming landlord residency status before finalizing a lease — not after a tax notice — is worth the one conversation it takes.
A lower rate may be available — but only through the DTAA, not by assumption
India’s Double Taxation Avoidance Agreements can reduce the effective rate below 31.2%, but only with a Tax Residency Certificate and Form 10F from the landlord, and often supporting documentation such as a Lower/Nil Deduction Certificate. Deducting at a reduced rate without that paperwork is a risk the tenant carries.
What this means for NRI landlords
A tenant who doesn’t want the TAN/monthly-filing hassle may simply decline an NRI-owned property, or may under-withhold without realizing it — exposing the landlord’s tax position when the mismatch surfaces in Form 26AS. NRI landlords are better served by being upfront about residency status and, if 31.2% genuinely exceeds real tax liability, applying for a Lower Deduction Certificate under Section 197.
Putting numbers on it
| Resident landlord (194-IB) | NRI landlord (195) | |
|---|---|---|
| Monthly rent | ₹40,000 | ₹40,000 |
| TDS applies? | No — below ₹50,000 threshold | Yes — no threshold |
| TDS deducted | ₹0 | ₹12,480/month (31.2%) |
| Net paid to landlord | ₹40,000 | ₹27,520 |
Related calculators
For more on rental income tax, see: Rental Income Tax in India: The 30% Deduction.
FAQ
How do I know if my landlord is an NRI?
There’s no public registry to check. Ask before signing the lease, and watch for indirect signs — rent collected via power of attorney, a landlord rarely reachable during Indian business hours, or an overseas mailing address on the sale deed.
What if I already paid rent for months without deducting TDS?
Register for a TAN and begin correct deduction going forward. Consult a CA about the shortfall — interest under Section 201(1A) typically applies, and resolving it sooner reduces the interest accrued.
Does 31.2% apply to the full rent or just rent above a threshold?
The full rent, from the first rupee. Unlike Section 194-IB’s ₹50,000/month threshold, Section 195 has no minimum.
Can the NRI landlord get a lower TDS rate?
Yes, but only through a formal process — a DTAA benefit with a Tax Residency Certificate and Form 10F, or a Lower/Nil Deduction Certificate under Section 197.
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