Procedure for Computing Income Tax on Rent for NRIs

The method for computing Income/Loss from House Property for NRIs:

Gross Annual Value (Rent received or expected rent(Nil in case of self occupied property))

Less: Municipal or other local taxes paid on the property

= Net Annual Value

Less: Deductions u/s 24

• Statutory deduction at 30 percent of the Net Annual Value (NAV)
• Interest paid on home loan

= Income or loss under the head House Property

The income from house property after all the statutory deductions will attract tax as per the tax slabs on the rent received. In addition to taxes on rent earned by the NRI in India, he/she may also be liable to pay taxes in the country resided, depending on the local tax laws. In case of DTAA (Double Tax Avoidance Agreement) with the NRIs country of residence, the rent earned would not be taxable in the country of residence.

TDS on Rent Paid:

Under section 195 of the IT Act, rent received by an NRI on property located in India, TDS at the rate of 30% of the rent paid should be deducted by the payer. The NRI receiving the rent can make a formal request to the jurisdictional officer for a lower TDS deduction. If approved, the TDS will be done at the rate specified in the certificate issued.

Note:

For deducting TDS on the rent, the payer should have a TAN. If the payer fails to deduct TDS on the rent paid to the NRI, the payer is liable to pay penalty as per the prevailing provisions.

Points to Remember:

1. Just like provisions available for resident Indians, if the interest paid on the housing loan exceeds the rent received during a specific assessment year, it can be offset against income from other sources. The "loss" under income from rent on house property can be carried forward for up to 8 years, to be adjusted against income from various sources in the following assessment years.
2. NRIs should file for tax returns as per the timelines, regardless of whether income has been earned from rent or not, during a specific assessment year.
3. The rent earned by the NRI should be credited to the NRO account only. It can only be credited to the NRE account if the payer is also an NRI who is using his/her NRE account to make the payment.
4. If the NRI opts for the remittance mode to receive the rental income, he/she should get a certificate from a Chartered Accountant stating that relevant taxes have been paid and that there is no further tax liability associated.
5. The NRI must provide of income from all sources in the ITR along with TDS from the rental income.