Introduction

Non‑agricultural income—such as salary, business profits, capital gains, interest, and rental income—forms the backbone of most taxpayers’ total taxable income. Understanding how each component is taxed, how deductions and surcharges apply, and what procedural requirements you must follow (especially for rental income) can save you money and headaches at filing time. In this post, we’ll walk you through:

1. How to determine the tax rate that applies to you
   
   
2. Step‑by‑step computation of taxable rental income
   
   
3. TDS obligations under Section 194‑IB
   
   
4. Practical tips to avoid excess TDS
   
   
5. The remittance process for NRIs
   
   
6. Penalties for non‑compliance
   
   

We’ll use simple language, clear tables, and worked examples to demystify the entire process from calculating your base tax to ensuring timely deposits and filings.

1. Which Tax Rate Applies to You?

Deciding how much tax you owe starts with adding up all your sources of income for the financial year—salary, business profits, capital gains, interest, and house‑property income (like rent). This combined amount determines your basic slab rate under the Income‑tax Act.

Below is a quick reference to the Old Tax Regime slab rates, which allow you to claim popular deductions (e.g. Section 80C, home‑loan interest).

Total Income (₹)

Basic Tax Rate

Up to 2,50,000

0%

2,50,001 – 5,00,000

5%

5,00,001 – 10,00,000

20%

Above 10,00,000

30%

Note: If you opt for the New Tax Regime (Section 115BAC), you forego most deductions but benefit from lower slab rates and a surcharge cap of 25% even on incomes above ₹2 crore. Always compare both regimes to pick the one with the lowest liability.

Surcharge and Cess

Once you compute the basic tax from the slab above, you may owe an additional surcharge (for high‑income individuals) and a universal Health & Education Cess of 4%. Here’s how the surcharge applies:

Total Income (₹)

Surcharge on Tax

Effective Rate = Slab Rate + Surcharge + 4% Cess

Up to 50,00,000

Nil

Slab rate + 4% cess

50,00,001 – 1,00,00,000

10%

Slab rate + 10% surcharge + 4% cess

1,00,00,001 – 2,00,00,000

15%

Slab rate + 15% surcharge + 4% cess

2,00,00,001 – 5,00,00,000

25%

Slab rate + 25% surcharge + 4% cess

Above 5,00,00,000

37%

Slab rate + 37% surcharge + 4% cess

Worked Example

• Base tax after deductions: ₹10 lakh
  
  
• Total income: ₹1.2 crore → surcharge bracket: 15%
  
  

1. Surcharge = 15% of ₹10 lakh = ₹1.5 lakh
   
   
2. Cess = 4% of (₹10 lakh + ₹1.5 lakh) = ₹0.46 lakh
   
   
3. Total payable = ₹10 lakh + ₹1.5 lakh + ₹0.46 lakh = ₹11.96 lakh
   
   

2. How to Compute Your Taxable Rental Income

Before you apply slab rates, you need your net rental income—the taxable component of your house‑property earnings. Follow these steps:

1. Gross Annual Value (GAV):
   – For let‑out property, GAV is the higher of actual rent received (or receivable) or the municipal value of the property.
   – For self‑occupied property, GAV is zero (but you can still claim interest deductions).
   
   
2. Less: Municipal Taxes Paid:
   Deduct the actual municipal taxes you paid during the year.
   
   
3. Less: Standard Deduction @30% of (GAV – Municipal Taxes):
   This covers maintenance and repairs; no receipts required.
   
   
4. Less: Home‑loan Interest:
   – Self‑occupied: Maximum ₹2 lakh per year.
   – Let‑out: No upper limit (subject to overall loss‑set‑off caps).
   
   

Component

Amount (₹)

a) Gross Annual Value (GAV)

5,00,000

b) Less: Municipal Taxes

(50,000)

c) Net GAV = a – b

4,50,000

d) Less: Standard Deduction @30% of c

(1,35,000)

e) Less: Home‑loan Interest

(1,80,000)

Taxable Rental Income = c – d – e

1,35,000

3. TDS Rules You Can’t Ignore (Section 194‑IB)

When you let out residential property at monthly rent above ₹50,000, the tenant must deduct tax at source (TDS) on rent. This ensures tax compliance throughout the year.

1. Obtain TAN:
   The tenant needs a Tax Deduction and Collection Account Number (TAN) to deposit rent‑TDS. Without TAN, TDS cannot be deposited and both parties face penalties.
   
   
2. Deduct @5% TDS:
   On each rent payment exceeding ₹50,000/month, the tenant withholds 5% of the rent.
   Example: Rent ₹60,000 → TDS ₹3,000 → Tenant pays you ₹57,000.
   
   
3. Deposit via Form 26QC:
   Within 30 days of deduction, the tenant must file Form 26QC and deposit the TDS online. Late deposits attract 1.5% interest per month.
   
   
4. Additional Forms for NRI Landlords:
   If you are an NRI, the tenant must also file Form 15CA (online remittance declaration) and obtain Form 15CB (CA’s certificate) before transferring rent abroad.
   
   
5. Consequences of Non‑Deduction or Non‑Deposit:
   – Tenant loses rent expense claim in their books.
   – Interest on unpaid TDS and penalties up to 200% of the TDS amount.
   – You, as landlord, lose credit for un‑deposited TDS, complicating your own filing.
   
   

4. Smart Tips to Avoid Excess TDS

TDS compliance need not be a nuisance. Follow these best practices:

• Share Your PAN Early:
  If the tenant deducts TDS without your PAN, they must withhold at 20% instead of 5%.
  
  
• Monitor Interest Deductions:
  Track home‑loan interest to claim exactly ₹2 lakh (self‑occupied) or the full amount (let‑out) without mistakes.
  
  
• Apply for a Lower/Nil TDS Certificate:
  Under Section 197, if your projected tax liability for the year is lower than expected TDS, apply to the Assessing Officer for a certificate to avoid excess withholding.
  
  
• Maintain Digital Proofs:
  Store rent receipts, municipal‑tax challans, home‑loan interest certificates, and all filed TDS forms in an organized folder.
  
  
• Engage a Chartered Accountant:
  A mid‑year review by a qualified CA (for example, at RMC) can advise whether you should apply for a nil‑TDS certificate or adjust your projections.
  
  

5. Remittance Process for NRIs

When an NRI landlord’s rent is sent abroad, strict procedural checks ensure compliance with foreign‑exchange rules and tax laws:

1. Form 15CA (Tenant):
   Online declaration detailing the remittance amount, purpose, and recipient information.
   
   
2. Form 15CB (CA):
   Chartered Accountant’s certificate confirming correct TDS deduction and taxability.
   
   
3. Proof of TDS & Taxes Paid:
   Stamped challans for Form 26QC and municipal‑tax receipts—the bank verifies these before releasing funds.
   
   
4. Bank Channels:
   Use RBI‑authorized dealer banks to process the remittance. They handle exchange‑rate application and RBI filings.
   
   

Timing Tip: Plan at least two weeks before the rent due date to collect forms, secure the CA sign‑off, and book your remittance slot.

6. Penalties for Non‑Compliance

Failure to follow TDS rules or filing requirements can invite hefty penalties:

Non‑Compliance Issue

Consequence

Late TDS deposit

Interest @1% per month on the unpaid TDS amount

Late filing of Form 26QC

Penalty up to ₹200 per day, capped at the TDS amount

Non‑deduction of TDS

Disallowance of rent expense in tenant’s books

Deliberate evasion or repeated default

Possible prosecution under the Income‑tax Act

As a landlord, if your tenant fails to deduct or deposit TDS, you must obtain a certificate from the Assessing Officer to claim credit—otherwise, the tax credit remains blocked.

7. Key Takeaways

By now, you should be equipped to:

• Classify Your Property: Self‑occupied, let‑out, or deemed let‑out—and know which incomes are taxable.
  
  
• Compute Rental Income: Calculate GAV, subtract municipal taxes, apply a 30% standard deduction, then home‑loan interest.
  
  
• Understand Your Slab & Surcharge: Compute base tax, add surcharge (if applicable) and 4% cess to budget accurately.
  
  
• Comply with TDS (Section 194‑IB): Deduct 5%, deposit on time via Form 26QC, and file remittance forms for NRIs.
  
  
• Avoid Excess TDS: Share your PAN, track deductions, apply for a nil‑TDS certificate, and keep organized proofs.
  
  

Plan NRI Remittances: Use Forms 15CA/15CB, liaise with authorized banks, and allow two weeks for processing.