Published 9 May 2026
Avoiding the flat 31.2% Tax Deducted at Source on rent under section 195 of the Income-tax Act, 1961 -- the Form 13 application route under section 197, the standard 30% deduction under section 24, the section 24(b) home-loan interest, and the practical filing flow
Taxpayer Brief
When a Non-Resident Indian rents out a flat in India, the tenant is required by section 195 of the Income-tax Act, 1961 to deduct Tax Deducted at Source on every rent payment at 30%, plus surcharge, plus the 4% Health and Education Cess -- an effective rate of 31.2% in the no-surcharge slab and up to 35.88% at higher slabs. The flat rate ignores the standard 30% statutory deduction under section 24(a), the home-loan interest deduction under section 24(b), and any Chapter VI-A deductions the Non-Resident Indian may be eligible for. The result is gross over-withholding -- a Non-Resident Indian with a ₹50 lakh annual rent and a ₹35 lakh home-loan interest may have an actual tax liability of zero but face ₹15.6 lakh of Tax Deducted at Source until refund processing nine months later. The Form 13 application under section 197 of the Income-tax Act, 1961 is the route to fix this -- a lower-deduction (or nil-deduction) certificate that lets the tenant deduct only the actual liability.
1. The Default Position -- Section 195 at 31.2%
Section 195 of the Income-tax Act, 1961 requires every person paying any sum to a Non-Resident which is chargeable to tax in India to deduct income-tax at the rates in force. For rent, the rates are prescribed in Part II of the First Schedule to the Finance Act for the relevant year -- 30% on the gross rent, plus surcharge, plus 4% Health and Education Cess. The deduction applies on the gross rent, not on the income from house property after section 24 deductions.
Indian Total Income Bracket of the Non-Resident Indian Landlord | Surcharge | Effective Tax Deducted at Source on Rent |
|---|---|---|
Up to ₹50 lakh | Nil | 31.2% |
₹50 lakh to ₹1 crore | 10% | 34.32% |
₹1 crore to ₹2 crore | 15% | 35.88% |
Above ₹2 crore (capped at 15% post Finance Act, 2023) | 15% | 35.88% |
The cash-flow burn A Mumbai apartment yielding ₹6 lakh per month of rent generates ₹72 lakh of gross rent in the year. Default Tax Deducted at Source: ₹22.5 lakh (31.2%). After section 24(a) standard 30% and section 24(b) interest of (say) ₹15 lakh, the actual annual tax liability of the Non-Resident Indian may be ₹10 to ₹12 lakh -- meaning ₹10 to ₹12 lakh of refund. Without Form 13, that excess Tax Deducted at Source sits with the income-tax department for 12 to 18 months before refund issues. |
2. The Section 197 Solution -- Form 13 Lower-Deduction Certificate
Sub-section (1) of section 197 of the Income-tax Act, 1961 empowers the assessing officer, on application by the assessee, to issue a certificate authorising the payer (tenant) to deduct Tax Deducted at Source at a lower rate or no rate at all. The application is made on Form 13 -- a structured income-tax return-like form filed online through the Tax Deducted at Source-Reconciliation Analysis and Correction Enabling System (TRACES) portal.
Step | Action | Time-line |
|---|---|---|
1 | Compute the projected income for the year -- gross rent, section 24 deductions, section 24(b) interest, Chapter VI-A deductions, total income, tax liability | Pre-application |
2 | Log in to the TRACES portal at https://www.tdscpc.gov.in as a taxpayer | Day 0 |
3 | File Form 13 with attachments -- rental agreement, property documents, home-loan statement, prior years' Income Tax Returns, projected computation | Day 0 to Day 7 |
4 | Application is allotted to the assessing officer (the International Taxation Range jurisdiction over the Non-Resident Indian) | Day 7 to Day 14 |
5 | Assessing officer may seek clarifications / additional documents | Day 14 to Day 30 |
6 | Certificate issued in Form 13A specifying the lower / nil rate of Tax Deducted at Source | Day 30 to Day 60 |
7 | Share the certificate with the tenant; tenant deducts at the certified rate from the issuance date onwards | Day 60 onwards |
3. What the Lower-Deduction Computation Looks Like
The assessing officer assesses the projected Income Tax liability for the year and authorises Tax Deducted at Source at a rate that broadly matches the actual liability. The Non-Resident Indian's Form 13 working is essentially a draft Income Tax Return computation.
Computation Step | Mr. Vishal's Numbers (Tax Year 2026-27) |
|---|---|
Gross annual rent (12 months × ₹3 lakh) | ₹36,00,000 |
Less: Section 24(a) -- 30% standard deduction on Net Annual Value | (₹10,80,000) |
Less: Section 24(b) -- interest on home loan | (₹8,50,000) |
Income from House Property | ₹16,70,000 |
Other Indian-source income (Non-Resident Ordinary interest, dividend) | ₹2,50,000 |
Gross Total Income | ₹19,20,000 |
Chapter VI-A deductions (section 80C up to ₹1.5 lakh; section 80D ₹25,000) | (₹1,75,000) |
Total Income | ₹17,45,000 |
Tax under old regime (slab rates) | ₹3,33,000 |
Health and Education Cess @ 4% | ₹13,320 |
Total tax liability | ₹3,46,320 |
Effective rate as percentage of gross rent (₹36 lakh) | 9.62% |
The Form 13 outcome Mr. Vishal's effective tax liability is ₹3.46 lakh on ₹36 lakh of gross rent -- 9.62%. The assessing officer issues a Form 13A certificate authorising the tenant to deduct Tax Deducted at Source at 10% (rounded up) instead of the default 31.2%. Saving on cash-flow: ₹7.6 lakh through the year, recovered through the Income Tax Return refund cycle anyway, but available now rather than 12-18 months later. The certificate is valid for the financial year of issue. |
4. The Tenant's Compliance Obligation
- Once the Form 13A certificate is in hand, the tenant deducts at the lower rate from the next rent payment onwards (not retrospective for already-deducted past months in the same year).
- The tenant must obtain a Tax Deduction and Collection Account Number under section 203A; rent paid to a Non-Resident Indian above ₹50,000 per month does not have the section 194-IB simplified route.
- Tax Deducted at Source under section 195 is reported in Form 27Q (the Non-Resident-payee statement) by the tenant at the end of each quarter.
- Form 16A (the Tax Deducted at Source certificate) is issued to the Non-Resident Indian within 15 days of filing Form 27Q for the quarter.
- Non-deduction or short-deduction is the tenant's exposure, not the landlord's -- the tenant becomes a defaulter under sub-section (1) of section 201 plus 1% per month interest under sub-section (1A).
5. Practical Documentation for the Form 13 Application
Document | Purpose |
|---|---|
Registered rental agreement | Establishes rent quantum and tenancy |
Title documents of the property (sale deed, possession letter) | Establishes ownership |
Home-loan sanction letter and amortisation schedule | Substantiates section 24(b) interest claim |
Provisional bank certificate for current-year interest | Year-specific interest figure |
Last three years' Income Tax Returns (Resident or Non-Resident) | Track record |
Form 26AS / Annual Information Statement of the previous year | Cross-tally |
Permanent Account Number card and passport copy | Identity |
Tax Residency Certificate from country of residence | Establishes Non-Resident status if Double Taxation Avoidance Agreement benefit also being claimed |
Computation of estimated total income for the application year | The core working |
6. Common Pitfalls
- Filing Form 13 too late in the year -- by the time the certificate issues in (say) October, six months of rent have already been deducted at 31.2%. File before the financial year begins or immediately at the start.
- Tenant deducts under section 194-IB at 5% by mistake -- section 194-IB applies only to rent paid by individuals to Resident landlords. Rent to a Non-Resident Indian must go through section 195.
- Tenant fails to obtain Tax Deduction and Collection Account Number -- a Non-Resident Indian's tenant who is an individual must apply for the Tax Deduction and Collection Account Number despite not being in tax audit; section 203A obligation is not waived for Non-Resident-payee deduction.
- Form 13 application not renewed for the next financial year -- the certificate is year-specific; new application required each year.
- Disclosing the rent income only in the Indian return but not in the foreign country's return -- the foreign country may also tax it, and the Non-Resident Indian must claim foreign tax credit or rely on the Double Taxation Avoidance Agreement immovable-property article.
BharatTax NRI Compliance Tool Is your Non-Resident status reflected in the income-tax department's Permanent Account Number database, and is your Permanent Account Number-Aadhaar status correctly tagged as exempt? Use the NRI Compliance Tool at itr.bharattax.co to verify, update residential status on the e-filing portal, and pre-validate your Non-Resident External or Non-Resident Ordinary bank account for any refund. |
7. Case Law Reference and Anticipatory Legal Analysis
Case Law Reference: Section 195 Tax Deducted at Source on rental payments Section 195 of the Income-tax Act, 1961 mandates Tax Deducted at Source on rental payments to Non-Resident landlords at 30% plus surcharge plus cess on the gross rent. Form 13 application under section 197 enables the landlord to obtain a lower-deduction certificate. The Income Tax Appellate Tribunal Mumbai in [VERIFY: confirm Tribunal citation on Form 13 lower-deduction certificate] confirmed the operational framework. The Karnataka High Court in [VERIFY: confirm High Court ruling on the section 197 certificate timing] addressed the strict-construction principle. [VERIFY: cross-check specific Tribunal citations in the BharatTax case-law database.] |
Prospective Interpretation -- The DTAA-based reduction overlay Two unsettled interpretive issues. (i) Treatment of the DTAA-based reduction where the NRI landlord furnishes Tax Residency Certificate -- some DTAAs provide reduced rates for rental income (typically 10-15%); the literal reading of section 195 read with section 90(2) is that the lower of treaty rate or domestic rate applies. (ii) Treatment of the Form 13 vs DTAA-direct architecture. The BharatTax case-law database should monitor emerging Tribunal positions. [VERIFY: confirm Tribunal decisions emerging on the Form 13 / DTAA framework.] |
8. Key Takeaways
- Default Tax Deducted at Source on rent paid to a Non-Resident Indian under section 195: 31.2% to 35.88% on gross rent.
- Form 13 application under section 197 is the standard route to a lower / nil deduction certificate -- typical processing time 30 to 60 days.
- Computation in Form 13 mirrors the Income Tax Return -- gross rent, section 24(a) standard 30%, section 24(b) interest, Chapter VI-A deductions, slab tax.
- File the application at the start of the financial year -- mid-year applications result in cash-flow loss for the early months.
- Tenant must obtain Tax Deduction and Collection Account Number, deduct under section 195, file Form 27Q, issue Form 16A.
- Certificate is year-specific; renew each financial year.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.