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Wednesday, April 23, 2014

An NRIs Guide to Rental Income in India


Yesterday one of my colleagues here was talking to me about his house in India. As he is working in Singapore, he has actually rented out his apartment and is earning an income each month. He was not aware as to whether he needs to pay taxes on that income in India or was he exempt because he is an NRI. I was able to alleviate his fears and guide him on the appropriate steps but it struck me that many of us have friends & relatives who are NRIs and are in the same situation as my friend.

So, this article will help clarify this tricky subject...

Who is an NRI?

NRI Stands for Non Resident Indian. Any Indian Citizen who is employed in a foreign country is considered an NRI.

Does India Have Double Taxation?

India does not implement Double Taxation. So, if your income is taxed in the country where you are employed, you need not pay taxes on that in India again.

Can NRIs earn rental income?

Absolutely Yes. However, the rent proceeds have to be credited only into an NRE or NRO account. If you do not have an NRE or an NRO Account, the Rent can also be directly remitted abroad (to the country where you are living). But, if you want to proceed with this remittance route - you would need an appropriate certificate from a chartered accountant certifying that all taxes have been duly paid.

Is this Rental Income Taxable in India?

Yes. Since this income is earned in India, tax will be payable by the NRI in India.

How Should this Tax be Paid?

Tax has to be deducted at source by the payer of the rent. The payer of the rent, must obtain a TAN number and deduct TDS of 30 per cent from the rent amount. He must also provide a TDS certificate to the NRI. The NRI will use this TDS Certificate and file his tax returns to obtain the requisite refund. For ex: If your rent per month is Rs. 20,000/- the Tenant should pay Rs. 6,000/- as Taxes each month and pay only Rs. 14,000/- as rent to you. You will then get the TDS Certificate from your Tenant and then file the Tax Returns to get the refund.

VERY IMPORTANT:
If you are living in a house that is owned by an NRI, you are liable to pay fines if you are not deducting TDS. The Tax Authorities will consider you the "RENT Payer" responsible for deducting TDS at 30% and remitting the same to the Tax Department. Though the property belongs to the NRI and he has to pay taxes, the tax officials expect you to take the initiative.

Alternately - If you are an NRI and your Tenant is not deducting TDS, it is your responsibility to file your tax returns and pay the taxes due from your side. At the end of the day you are the owner of the property and you are liable to pay fines for tax evasion.

Is rental income taxed in the country of residence?

It Depends..

As an NRI, you are a resident of another country and hence you will come under that countries jurisdiction when it comes to tax matters. In most cases, countries levy tax on residents on their global income. Even if you are paying taxes on your Indian Rental Income (Or any other income for that matter) the same could be taxed in your country as well. In such cases, we need to refer to the Double Taxation Avoidance Agreements that India has entered into with various countries.

For Ex: Between India and USA We have a DTAA Agreement. According to it - Rent from immovable property will be taxed in the country in which the property is situated. So NRIs who are residents of US would have to pay tax on rental income in India. While they would still have to declare that income while filing their tax returns in the US, they would get a credit for taxes paid in India.

So, it is best if you check the tax laws of the country where you are a resident or consult a tax expert in that country to avoid tax evasion issues there.

How Much Tax Am I Liable to Pay?

You need to add the "Rental Income" to any other income you may have in India like - Capital gains from sale of stock market instruments, interest on deposits etc. The total income would be considered as taxable income and you need to pay taxes based on which slab you fall under.

If your total income in India is lower than the minimum threshold (2.5 lakhs) you are not liable to pay any taxes however it is best if you at least file your TAX Returns to be on the safe side. Remember - Your tenant will be deducting TDS on the rent he pays you. So, even if the rent is lesser than the minimum tax threshold, you will still need to file your tax returns in order to get the TDS Refund.

As NRI's we dont get benefits like Section 80C or other tax saving options. So, whatever we earn in India beyond the minimum threshold is fully taxable.

Hope this answered your basic queries reg. Rental Income for NRI's. If you have any further queries - do leave a comment and I will try my best to answer the Query...

12 comments:

  1. thanks for your guides.I'm NRI I have 2 doubts.

    1) i have some house property. I have that in lease basis. Like 2 Lakh for 2 years. After 2 years once they vacate i'll return. In that case how to calculate the % of tax?

    2) I have deposit in my NRI Account even though if the interest go more than 2.5Lakh per annum i need to pay tax?

    Thanks in advance for you more clear my doubts.

    ReplyDelete
    Replies
    1. Lax - Interest Income on your NRE Account is exempt from taxes but if you have any other income in India - like income from shares, you need to pay taxes on the same.

      Leased income which is returned is not treated at the same level as rental income. It is better you consult a good chartered accountant in India and get his advise.

      Delete
  2. Very good article

    I have some Question, I am NRI , I have two Flats out of them one flat is on Rent for 11500 monthly and it is deposited directly in My NRO account ,Did i need to Pay tax? , As it come under 2 lacs tax exemption limitation from government of India.--- Vijay

    ReplyDelete
    Replies
    1. No, you need not pay any taxes but you have to file your tax returns. Ideally your tenant should deduct TDS and remit it to the tax authorities and at the end of the year, you must file your taxes and claim a refund.

      Delete
    2. Thanks you very much Anandji for your reply and very good suggestion, for current financial year i already told my tenant to cut TDS accordingly now onwards, now Question is, I am going to file IT returns for last financial year (which end on 31 March 2014) as my tenant does not deduct TDS still i can file IT Returns, as I not done a proper way as per law by Government of India.or any other complication while filing IT returned due to this issue
      Once again thanks for usefully suggestion, much appreciated

      Delete
    3. It should be ok Vijay. Just file your taxes and show the proper rental amount in your tax returns. It would be good if you enlist the help of a chartered accountant/tax filing service. They may charge a few hundred rupees but it will be a lot easier for you.

      Delete
  3. I am NRI working abroad since 2007 (Normally I am away from India around 220 day every year) , Also I have NRE and NRO account since 2007, Usually transaction from abroad is done in NRE account, Now my Question is
    1) I have joint Saving account with my wife since 2004 in other bank , my wife is resistant in India (she is not NRI), most of transaction in this account is carried out on my wife name so it that ok to continue this joint saving account with my wife. or i need to declare something in IT department or I need to close my name in joint saving account.I like to mention here there is fixed deposit on wife name in that bank with saving account.
    2) legally can i make joint account holder to my wife in NRE account even if she is not NRI.

    ReplyDelete
    Replies
    1. See answers below:

      1. Whoever gets the rent (whose account money gets deposited) has to show the rental income in their tax returns. And yes, the account into which the rent is received has to be declared while filing the returns.

      2. No, legally an NRI cannot have a joint account with a resident indian. Similarly, your wife who is a resident indian cannot be a joint holder in your nre account.

      You need to close that account and make it individually operated by your wife. Then you can ask the rent to be deposited into your wife's bank account. Once done, your wife has to show the rent as her income.

      Alternately, you can ask the rent to be deposited into your nre account and you can file tax returns on your name.

      Delete
  4. I've recently moved to Singapore and have vacated the rented house in Bangalore. My owner was NRI (based in the US) and had opened a TDS account for TAX deduction. Who is responsible for closing the TDS account for Tax deduction?

    ReplyDelete
    Replies
    1. As you are the one who used to deduct the TDS and remit the same, the primary responsibility would be on you. Better to start the process to avoid any issues in future.

      Delete

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