I am a NRI with a residential property in Mumbai that I have rented to a salaried individual. The monthly rent is ₹90,000 and the lessee has deducted TDS at 5%. In the lease agreement, I mentioned my Indian address and PAN but did not inform the tenant about my NRI status. Could there be any consequences for not disclosing my non-resident status to the tenant?
– Name withheld on request
As an NRI, the TDS on your rental income should have been deducted at 30% (plus surcharge and cess) under Section 195 of the Income Tax Act, 1961. Since the tenant only deducted TDS at 5% (under Section 194IB for residential property owners), there is a shortfall in the TDS amount.
Under Indian tax law, the tenant, being responsible for the TDS deduction, could be considered as an assessee-in-default for not deducting the appropriate amount of TDS and may face interest payments and penalties for the shortfall.
However, as the recipient of the rental income, you are also responsible for declaring the full rental income while filing your Indian tax return. The difference between the TDS deducted (5%) and the applicable tax will become your additional tax liability. If advance tax is not paid for the differential tax liability, you will become liable for interest under Sections 234B and 234C.
It is advisable that you inform your lessee about your NRI status and ensure that the correct TDS rate is applied to save both parties from any adverse consequences under tax law.
I had gone to US to pursue an executive course in July 2023 and returned to India in June 2024. I had opened a savings bank account in the US, which I closed before coming back to India. Did I need to disclose this bank account and any interest earned in my Indian income tax return?
– Name withheld on request
Assuming that you qualified as a ‘resident and ordinary resident’ (ROR) for FY24, your global income is subject to taxation in India. As such, any interest income earned from your US savings account is part of your global income and must included in your Indian income tax return.
Also, under the Schedule Foreign Assets (FA) in the Indian income tax return for FY24, Indian RORs are required to report any foreign assets held at any point during the calendar year 2023. Since you held the US bank account during calendar year 2023, you were required to disclose it under Schedule FA. The account should have been reported under the depository account section along with details such the name of the bank, address, account number, account opening date, peak balance, closing balance, and so on. If you didn’t disclose this foreign interest income in Schedule FA, you can still file a revised return by 31 December 2024.
Also, when filing your income tax return for FY25, you must report the interest income and disclose the foreign bank account, even though you closed it before returning to India in June 2024.
Harshal Bhuta is a partner at PR Bhuta & Co.