Owing to the potential it offers, investing in real estate is the most sought after ways to let your hard earned money work for you. India has been witnessing stable economic growth over the last decade or so, creating more wealth in the hands of its citizens. Naturally, investing in viable options such as property is reaching newer heights. It is not only attracting resident Indians, but also catching the eye of the NRI class, who’re buying properties like never before.
This article throws light on computing income tax on rent received by NRIs on their property in India.
The income tax levy on NRIs receiving rent from their property in India is more or less computed in the same manner as resident Indian. It is taxed under “House Property”. In the rent received by an NRI during a specific assessment year, the local municipal taxes are deducted first to arrive at the NAV (Net asset value). From this figure, deductions of 30% u/s 24 is allowed. Interest paid on home loan (if any), will be reduced from this amount to arrive at income from house property.
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.
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:
- 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.
- 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.
- 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.
- 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.
- The NRI must provide of income from all sources in the ITR along with TDS from the rental income.