Tax on rental income for NRIs

[] This guide explains the taxes imposed on rental income of NRIs in India.

If an NRI has a property in the country which he have given out to let, there are certain points he must be mindful of. Taxation on an NRI’s rental income follows specified legislation, and keeping track of the legal intricacies might get a little confusing. Note that if you are an Indian citizen but you have not lived in the country for 365 days or more in the last four years, you are eligible to be identified as an a non-resident Indian (NRI).

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This guide explains the taxes imposed on rental income of NRIs in India.   


How can an NRI make the most out of their rental property?

If you are an NRI, you will have to make a list of all the individual properties you own in India, if there are more than one such properties under your ownership. An NRI is legally allowed to rent out the property they own within India, as long as the taxation on their rental income is met. If you rent your property out, the tenant can pay the rent in one of two ways.

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First, they can transfer the rent to your Non-Resident Ordinary (NRO) account. An NRO account can repatriate up to $1 million per financial year. Second, you can make use of your bank account in your country of residence, too. A tenant renting your Indian property can transfer the money directly to your bank account in the country of your residence, but they will also have to submit Form 15CA to the Income Tax Department. It is also possible that submitting Form 15CB, which contains details about the transaction certified by a chartered accountant~ becomes necessary.


What is deemed rent?

NRIs renting out property in India must be aware of the concept of deemed rent, especially if they have multiple properties in India that could potentially be rented out. For example, if you only have one such property that is currently not being rented out, it will be categorised as self-occupied. That means that you will not have tax liability because of it. On the other hand, if you have given your only property in India to let, you will have to pay taxes. 

If you have, say, two of such properties, and you rent one of them out while the other hasn’t been rented, you will once again only have to pay taxes over the rental income of one of your properties. The other will be considered as self-occupied. However, if you have two of such properties and your rent out neither, one of them will be considered self-occupied and the other will be deemed to have been rented out and considered as your rental income. The property which is being taxed will thus have a deemed rent.


What are the taxation rates on NRI rental income?

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If you earn an income from renting out your property in India, the taxes on your rental income will be levied and payable to India, according to the marginal tax income rate that applies for NRIs. After the income from your properties is calculated and received, add it to the rest of your incomes like your salary and your capital gains. This will bring you to the figure that will be your total income. You can move on to your applicable tax slab rate from here. Besides, there is also a 4% education cess and surcharge that can also apply. If your total income (including the rent you receive from your property in India) comes down to less than Rupees 2.5 lakh, you aren’t liable to be taxed. However, if that is not the case and your income is over the exemption limit, the applicable taxes will be deducted at the source at the rate of 31.2%.

If your current country of residence has a Double Tax Avoidance Agreement (or a DTAA) with India, there will be no double-tax on the income from your property. Approximately 90 countries, including the US, the UK, Canada and Australia, have a DTAA with India.


How can the TDS rates be factored in?

If your income from rental properties in India exceeds the exempted limit, your tenant will be responsible for deducting the tax at the rate of 31.2% as TDS on rent (Tax Deducted at Source) per month. They have to get hold of a Tax Deduction and Collection Account Number (TAN). They also have to deposit the due TDS amount and pass the TDS certificate to you. However, you will receive a tax refund after filing your returns if your TDS amount actually adds up to more than your tax liability.

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