Paying Rent to an NRI Landlord: The TDS, TAN, Form 27Q and 15CA the Tenant Must Get Right

A tenant in Pune signs a lease for a Rs 1,00,000-a-month flat. The owner lives in Dubai. The tenant does what most tenants do: pays the full Rs 1,00,000 into the owner's bank account on the first of every month, and assumes that whatever tax is due is the owner's problem. Two years later the tenant gets a notice from the Income Tax Department. The notice is not about the tenant's own income. It is about the rent the tenant paid, the tax the tenant should have deducted from it, and the interest and penalty the tenant now owes for not deducting it.

This is the single most expensive mistake a tenant can make in India, and almost nobody who rents from an NRI knows the rule exists. The moment your landlord is a non-resident, the rent you pay stops being covered by the familiar resident-landlord TDS sections. It moves under Section 195, and Section 195 is built for a different audience with a much heavier compliance load.

The 30-second answer: Rent paid to an NRI landlord is covered by Section 195, not Section 194-I or Section 194-IB which apply only to resident landlords. The tenant must deduct TDS at 30% plus 4% cess, an effective 31.2% on gross rent (with a surcharge of 10% to 37% added once the landlord's income crosses Rs 50 lakh), from the very first rupee with no threshold. The tenant must hold a TAN, deposit the tax by the 7th of the next month using challan ITNS-281, file Form 27Q quarterly, issue Form 16A to the landlord, and file Form 15CA before each credit, with a CA-certified Form 15CB once annual rent crosses Rs 5 lakh. The rate drops if the landlord supplies a Section 197 lower-deduction certificate or a treaty rate applies. Skip this and the tenant, not the landlord, pays the interest and penalty.

This guide is for both sides of that lease. If you are the tenant, it tells you exactly what to deduct, when to deposit it, and which forms to file so a notice never arrives. If you are the NRI landlord, it tells you how to make this painless for your tenant, because a tenant who finds out about Section 195 the hard way often just terminates the lease. I will walk through which section applies and why it matters, the rate and how to compute it, the TAN and the forms, a full worked example with rupee figures, the consequences of getting it wrong, and the edge cases that trip people up. For the master view of the filing season, see the ITR filing hub for NRIs for AY 2026-27.

Why the landlord's residential status changes everything

Most people in India have a rough mental model of rent TDS, and it usually comes from one of two resident-landlord sections.

Section 194-I applies when the tenant is a business or a person subject to tax audit, paying rent above Rs 2,40,000 a year to a resident landlord. The rate is 10% on rent for land or buildings. It needs a TAN.

Section 194-IB is the one most individuals have heard of. It applies when an individual or HUF tenant (not in business, not under audit) pays rent above Rs 50,000 a month to a resident landlord. The rate is 2% (reduced from 5% with effect from October 1, 2024), deducted once a year in the last month of the tenancy or the financial year, and the great convenience is that no TAN is needed: the tenant deducts using only their PAN and the landlord's PAN, and files a simple Form 26QC.

Both of those sections share one defining feature in their text: they apply to rent paid to a resident. The moment the landlord is a non-resident, neither section applies. The catch-all that takes over is Section 195, which governs TDS on "any sum chargeable under the provisions of this Act" paid to a non-resident.

This is not a technicality you can argue around. The residential status of the payee, not the tenant, decides the section. So the same flat, with the same rent, generates a 2% PAN-only deduction if the owner is resident and a 31.2% TAN-backed Section 195 deduction if the owner is an NRI. The rule does not care whether the tenant knew the landlord had moved abroad. The duty to deduct correctly sits on the tenant, and ignorance of the landlord's status is not a defence the department accepts.

The honest framing here is that Section 195 was never designed with the small residential tenant in mind. It was written for businesses making cross-border payments to foreign parties, which is why it carries a TAN requirement, a quarterly return, and a remittance certification regime. A young professional renting a 2BHK gets dropped into that same machinery the instant their landlord turns out to be an NRI, and the system offers them no simplified track.

The rate: 30% plus cess, plus surcharge where it bites

Under Section 195 read with the Finance Act rates, rent paid to a non-resident is taxed in the NRI's hands as income from house property and the TDS is deducted at the slab rate applicable to that income, which for rent is the maximum marginal rate of 30%, increased by surcharge where applicable and by the 4% Health and Education cess.

Work through the components:

• Base rate: 30% on the gross rent. Note that the tenant deducts on the gross figure, not on the net-of-30%-standard-deduction figure that the landlord eventually computes in the return. The standard deduction under Section 24(a) is the landlord's relief at assessment, not the tenant's at deduction.
• Health and Education cess: 4% on the tax. That takes 30% to 31.2%.
• Surcharge: added only once the NRI landlord's total income crosses Rs 50 lakh. The surcharge slabs are 10% for income above Rs 50 lakh up to Rs 1 crore, 15% above Rs 1 crore up to Rs 2 crore, 25% above Rs 2 crore up to Rs 5 crore, and 37% above Rs 5 crore under the old regime (the new regime under Section 115BAC caps the surcharge at 25%). Surcharge is applied to the tax before cess, and cess then applies on tax plus surcharge.

For the overwhelming majority of residential tenancies, where annual rent runs from a few lakh to maybe Rs 20 lakh or 30 lakh and the landlord has no other large Indian income, the operative rate is 31.2%, with no surcharge. That is the number to anchor on, and it is the rate I use in the worked example below.

There is no threshold under Section 195. The Rs 2,40,000 ceiling in Section 194-I and the Rs 50,000-a-month floor in Section 194-IB simply do not exist here. If the rent is chargeable to tax in India, and rent on Indian property always is, the tenant deducts from the first rupee.

Two routes bring the rate down, and both depend on the landlord acting, not the tenant:

1. A Section 197 lower-deduction certificate. The NRI landlord files Form 13 with the Assessing Officer, shows that the actual tax on the rent (after the 30% standard deduction and any interest on a home loan) is far below 31.2% of gross rent, and the officer issues a certificate specifying a lower rate. The tenant then deducts at that certified rate. This is the single most valuable thing an NRI landlord can do, and I cover the mechanics in the dedicated guide on the lower-TDS certificate and Form 13.
2. A treaty rate. Some tax treaties cap the rate on income from immovable property, though in practice most treaties leave the taxing right with the country where the property sits (India) and do not cut the domestic rate on rent. Treaty relief is more commonly relevant for interest and dividends than for rent, but where it applies the tenant needs the landlord's Tax Residency Certificate and Form 10F on file. The treaty mechanics are covered in DTAA mechanics, the TRC and Form 10F.

The TAN: the first thing the tenant must do

This is the step that catches individual tenants completely off guard, because Section 194-IB conditioned everyone to think rent TDS needs no TAN.

For Section 195, the tenant must obtain a TAN (Tax Deduction and Collection Account Number) before depositing the first month's TDS. The application is Form 49B, filed online through the NSDL/Protean portal or the income tax e-filing site, and the TAN typically issues within a week or two. There is no exemption for small individual tenants. A salaried professional renting one flat from an NRI is, in the eyes of Section 195, a deductor in exactly the same position as a company.

A few tenants try to dodge the TAN by deducting under Section 194-IB anyway, on the logic that it is "simpler" and "still TDS." That does not work. Form 26QC is hard-wired to a resident landlord's PAN and the wrong section, the deduction is treated as not validly made under Section 195, and the tenant remains an assessee-in-default. The TAN route is the only correct one.

The compliance cycle, month by month and quarter by quarter

Once the TAN is in hand, the tenant runs the following cycle.

Deduct at credit or payment, whichever is earlier. TDS under Section 195 is triggered when the rent is paid or credited to the landlord's account, whichever happens first. For a normal monthly tenancy that is the first of the month when the rent is transferred.

Deposit by the 7th of the next month. The deducted tax is paid to the government using challan ITNS-281 under the TAN. The due date is the 7th of the month following deduction, with the March deduction due by April 30.

File Form 27Q every quarter. Section 195 deductions are reported in Form 27Q, the quarterly TDS return for payments to non-residents. The due dates are July 31 (April to June), October 31 (July to September), January 31 (October to December), and May 31 (January to March). Form 27Q captures the landlord's PAN, the rent, the rate, the tax, and, importantly, where no PAN is available, the landlord's foreign address, contact and tax identification number.

Issue Form 16A to the landlord. Within 15 days of the Form 27Q due date, the tenant downloads Form 16A from TRACES and gives it to the landlord. This is the landlord's proof of tax deducted, and the credit shows up in the landlord's Form 26AS and AIS. Without it, the NRI cannot claim the TDS against their final liability or in a refund claim.

File Form 15CA before each credit, and Form 15CB once you cross Rs 5 lakh. This is the layer most tenants miss entirely, and it sits on top of the TDS machinery, not instead of it.

Form 15CA and 15CB: the remittance certification

Rent credited to an NRI landlord is a payment to a non-resident, and payments to non-residents that are chargeable to tax run through the Form 15CA declaration regime under Rule 37BB, even when the money never leaves India and simply lands in the landlord's NRO account.

The form is split into parts, and the part you file depends on the amount:

• Part A of Form 15CA, where the total rent to that landlord in the financial year does not exceed Rs 5 lakh.
• Part B, where the rent exceeds Rs 5 lakh and the landlord has obtained a Section 195(2), 195(3) or 197 certificate from the Assessing Officer.
• Part C, where the rent exceeds Rs 5 lakh and a chartered accountant has certified the payment in Form 15CB.
• Part D, where the payment is not chargeable to tax (which will not apply to ordinary rent, since rent on Indian property is always chargeable).

The practical reading: if the annual rent is Rs 5 lakh or less, the tenant files Form 15CA Part A and no CA certificate is needed. Once annual rent crosses Rs 5 lakh, the tenant must get a Form 15CB signed by a chartered accountant and then file Form 15CA Part C. Form 15CA is filed on the income tax portal under the tenant's login, ideally before each rent credit, and many advisers file it monthly to stay clean, though a consolidated approach is sometimes used in practice. The Rs 5 lakh line is the trigger for the CA certificate, not for the TDS itself, which starts from rupee one.

For a Rs 1,00,000-a-month flat, annual rent is Rs 12,00,000, comfortably over the Rs 5 lakh line, so a 15CB from a CA and 15CA Part C are both required. For a Rs 35,000-a-month flat, annual rent is Rs 4,20,000, under the line, so only 15CA Part A applies. Either way the 31.2% TDS, the TAN, and Form 27Q are unchanged.

Worked example: Rs 1,00,000 a month, with and without a lower certificate

Take the Pune flat. Monthly rent Rs 1,00,000, annual rent Rs 12,00,000, landlord resident in Dubai with no other significant Indian income.

Scenario 1: standard Section 195 deduction, no certificate.

The tenant deducts at 31.2% on the gross rent.

• Monthly TDS: Rs 1,00,000 x 31.2% = Rs 31,200
• Net paid to the landlord each month: Rs 1,00,000 less Rs 31,200 = Rs 68,800
• Annual TDS deducted and deposited: Rs 31,200 x 12 = Rs 3,74,400

Now look at what the landlord actually owes at assessment. The landlord computes income from house property: gross annual value Rs 12,00,000, less the 30% standard deduction under Section 24(a) of Rs 3,60,000, giving net taxable rental income of Rs 8,40,000 (assuming no home loan interest and ignoring municipal taxes). Under the new regime for FY 2025-26, tax on Rs 8,40,000 works out to roughly Rs 24,960 including cess (nil up to Rs 4,00,000, 5% on the next Rs 4,00,000, 10% on the last Rs 40,000, plus 4% cess).

So the landlord's actual tax is about Rs 24,960, but the tenant has deducted Rs 3,74,400. The landlord has overpaid by roughly Rs 3,49,440 and has to wait for the next return and a refund cycle to get it back. That is real money locked up for the better part of a year. This is exactly why the lower certificate matters.

Scenario 2: landlord obtains a Section 197 certificate.

Before the financial year, the landlord files Form 13, demonstrates that the real tax on the rent is a small fraction of gross rent, and the Assessing Officer issues a certificate authorising deduction at, say, 3% (the officer sets the rate after factoring in the standard deduction and a buffer). The tenant deducts at the certified rate.

• Monthly TDS: Rs 1,00,000 x 3% = Rs 3,000
• Net paid to the landlord each month: Rs 1,00,000 less Rs 3,000 = Rs 97,000
• Annual TDS deducted: Rs 3,000 x 12 = Rs 36,000

Now the annual TDS of Rs 36,000 is close to the true liability of about Rs 24,960, the landlord's cash is not locked up, and the small remaining gap is settled or refunded at assessment with minimal friction. The compliance cycle for the tenant is identical (TAN, ITNS-281, Form 27Q, Form 16A, Form 15CA/CB), only the rate changes. The certificate is the difference between the landlord financing the government interest-free all year and the landlord keeping their own money.

The honest read on the example: the tenant's workload is the same in both scenarios. The certificate is purely the landlord's job, and a landlord who does not get one is choosing to lend roughly Rs 3,49,000 to the tax department for a year for no reason.

What happens if the tenant does not deduct

This is where the section earns its reputation, and it is worth being precise because the consequences land on the tenant, not the landlord.

Assessee-in-default under Section 201(1). A tenant who fails to deduct, or deducts and fails to deposit, is treated as an assessee-in-default. The department can recover the tax that should have been deducted directly from the tenant. The fact that the landlord may have separately paid tax on the rent can reduce the recovery, but only if the tenant proves it, which is a slow and uncertain process.

Interest under Section 201(1A). This is mandatory and not waivable. Interest runs at 1% per month from the date the tax should have been deducted to the date it actually was, and at 1.5% per month from the date of deduction to the date of deposit. On rent paid over two or three years, the interest alone can run into lakhs.

Penalty under Section 271C. A penalty equal to the amount of tax not deducted can be levied for failure to deduct. On the Rs 1,00,000 flat at 31.2% over a year, that is a potential penalty of up to Rs 3,74,400 stacked on top of the tax and interest. Courts have read Section 271C narrowly on late deposit (as opposed to non-deduction), but the exposure on a straight failure to deduct is real.

Prosecution under Section 276B. In serious cases, failure to deposit deducted tax can attract prosecution, with rigorous imprisonment of three months to seven years and a fine. This is reserved for egregious cases but it exists on the statute.

Disallowance under Section 40(a)(i), for business tenants. If the tenant is a business and the rent is claimed as a business expense, failure to deduct TDS on the payment to the non-resident leads to 100% disallowance of the rent under Section 40(a)(i). The whole rent is added back to the business's taxable income. (For payments to residents the disallowance is 30%; for non-residents under Section 195 it is the full 100%.)

The closing point on consequences is blunt: the landlord sitting in Dubai faces none of this. The tenant in Pune faces all of it. The asymmetry is the entire reason a tenant should treat the landlord's residential status as a question to ask before signing the lease, not after.

How the NRI landlord plans for this

If you are the NRI landlord, the failure mode is not usually that you get taxed too much. It is that your tenant either over-deducts and locks up your cash, or finds out about Section 195 mid-lease, panics, and either renegotiates or leaves. Planning ahead solves both.

Tell the tenant your status before the lease is signed. A tenant who learns about the 31.2% deduction after moving in feels ambushed. A tenant who is told up front, with a clean explanation and an offer to share the certificate, treats it as routine.

Apply for the Section 197 certificate early. File Form 13 before the financial year starts, or as soon as the tenancy begins. The certificate aligns the deduction with your real liability and removes the tenant's biggest objection, which is the cash-flow hit of paying 31.2% to the government every month.

Make sure the rent lands in your NRO account. Rental income on Indian property must be credited to your NRO account, not your NRE account. The post-TDS rent is the credit. From the NRO account you can repatriate up to the annual USD 1 million limit after the usual certification, covered in the NRO repatriation process guide.

File your Indian return and claim the TDS. The tenant's Form 16A and your Form 26AS will show the deducted tax. You claim it against your actual liability when you file your NRI income tax return, and any excess comes back as a refund. The full mechanics of taxing the rent itself, including the 30% standard deduction and home-loan interest, are in the guide on tax on Indian rental income for NRIs.

Edge cases

Corporate or business tenants. A company, firm or any tenant subject to tax audit is already used to TANs and TDS returns, so the mechanics are familiar, but the surcharge math and the Section 40(a)(i) disallowance risk are sharper. A business that gets the deduction wrong loses the rent as a deductible expense entirely, which is a far bigger hit than the TDS itself.

Sub-letting. If the person paying rent to the NRI is themselves sub-letting, the Section 195 obligation still attaches to whoever credits or pays the rent to the non-resident owner. The intermediate sub-lessor cannot push the duty onto the end occupant. Whoever pays the NRI deducts under Section 195.

Rent credited to an NRE account. The default and correct account for rent is the NRO account. Rent should not be routed to an NRE account, because NRE is meant for foreign-sourced income freely repatriable, and Indian rental income is domestic-sourced. The narrow exception some banks accept is where the tenant is also an NRI paying from their own NRE account, but for a resident tenant the credit must be to the landlord's NRO account.

Repatriation timing. The tenant's TDS and the landlord's repatriation are two separate steps. The tenant deducts and deposits TDS at the point of paying rent. The landlord, separately, repatriates accumulated rent out of the NRO account later, which triggers its own Form 15CA/15CB at the repatriation stage. Do not confuse the 15CA the tenant files on the rent credit with the 15CA the landlord files on repatriation; they are different events on the same money.

Treaty rate claims. Where an NRI landlord wants to argue a treaty caps the rate below 31.2%, the tenant should not act on a verbal claim. Get the landlord's Tax Residency Certificate, Form 10F, and ideally a written position before deducting at a treaty rate, because if the claim is wrong the tenant carries the shortfall. For most rent, the treaty does not actually lower the domestic rate, so this comes up less than landlords hope.

Joint ownership. Where the property is jointly owned and one or more owners are NRIs, the rent attributable to the NRI co-owner falls under Section 195 while the resident co-owner's share follows the resident sections. The tenant has to split the rent by ownership share and apply the right section to each. This is covered further in the guide on joint property income and tax for NRIs.

What both sides usually miss

Tenants miss that the TAN is mandatory and that Section 194-IB does not apply, so they default to a PAN-only 2% deduction that the law does not recognise, leaving them fully exposed.

Tenants also miss the Form 15CA layer entirely. They sometimes get the TDS right and still skip the 15CA filing, which is a separate compliance default under Rule 37BB.

Landlords miss that the Section 197 certificate is the whole game. They accept a 31.2% deduction as inevitable, lock up enormous cash for a year, and complain about refunds, when a Form 13 filing at the start of the year would have set the deduction near their true 2% to 3% effective rate.

And both sides miss that the risk is entirely on the tenant. The landlord abroad is not the one who gets the Section 201 notice, the interest, or the 271C penalty. Once both parties understand that, the lease conversation changes: the landlord has every incentive to get the certificate, and the tenant has every incentive to insist on it.

The closing read

If you are renting from an NRI, the rule is not optional and it is not the landlord's problem to solve alone. Get a TAN, deduct 31.2% on the gross rent (or the lower certified rate if the landlord supplies a Section 197 certificate), deposit it by the 7th of the next month using ITNS-281, file Form 27Q every quarter, hand the landlord Form 16A, and file Form 15CA before each credit with a Form 15CB once annual rent crosses Rs 5 lakh. Do that and a notice never comes.

If you are the NRI landlord, the honest answer is that you should never let a tenant face the standard 31.2% deduction. File Form 13 before the year starts, get the certificate down to your real effective rate, and hand it to the tenant before they ask. It protects your cash flow, it removes the single biggest reason a tenant would balk at renting from an NRI, and it costs you a one-time filing. The tenant who knows the rule and the landlord who plans for it never end up in the same room as an Assessing Officer. The tenant who does not, does.

Related guides

• Tax on Indian rental income for NRIs
• ITR filing for NRIs, AY 2026-27
• Lower-TDS certificate and Form 13
• DTAA mechanics, the TRC and Form 10F
• TDS for NRIs and how refunds work
• Form 26AS and AIS for NRIs
• Joint property income and tax for NRIs
• Reducing NRO TDS using the DTAA
• The NRO repatriation process
• PAN for NRIs
• Buying property in India as an NRI
• Selling property in India as an NRI
• Power of attorney for NRI banking and property
• Advance tax for NRIs

Disclaimer

This guide is general information, not tax or legal advice, and reflects rules and rates current for FY 2025-26 (AY 2026-27) as understood at the time of writing. TDS rates, surcharge thresholds, Form 15CA/15CB requirements under Rule 37BB, and treaty positions change, and the application to your situation depends on the specific facts of your tenancy, ownership and residential status. Before deducting at a treaty or lower-certificate rate, or if you have already missed a deduction, consult a qualified chartered accountant or tax adviser. Verify all forms and due dates against the current position on the income tax e-filing portal.