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Rental Income and Taxation for NRI

Rental Income and Taxation for NRI

NRI who settled in abroad may continue to own a house property in India. Irrespective of an individual’s residential status, Income which is ‘earned’ in India is taxable in India. Rental Income from a property which is situated in India is an income earned in India.

Tax on Rental Income:

Rental from both commercial and residential property is chargeable to tax under the head Income from House Property. Add this rental income to any other income the NRI earns in India. If the total Income earned in India is more than the minimum exemption limit, tax is payable based on the tax slabs for the financial year. In such a case a return must be filed by the NRI.

Under the head Income from House Property, certain deductions are allowed to be claimed and those are also available to an NRI.

TDS on Rental Income:

The tenant is required to deduct TDS before making a payment to the NRI, on rent payments to NRIs TDS is deducted @ 30%. Now there can be two situations –

When the total Income of the NRI is less than the minimum exemption limit – If TDS has been deducted on rental income, a refund may be due to the NRI. The only way to claim a refund is to file an Income Tax Return. All TDS deductions are linked to the PAN and the NRI can check these details from his Form 26AS

When the total income of the NRI is more than the minimum exemption limit – In such a case whether or not TDS has been deducted the NRI must file a return and pay the tax which is due. In case TDS has been deducted it is adjusted against his final tax liability. Since TDS is deducted at 30% and this rate of tax is applicable in the highest tax slab of income more than Rs 10lakhs, a refund situation may arise if the total income of the NRI is in a lower tax slab.

While calculating the taxable value of rental income, various deductions are available. It includes:
  • Standard deduction at 30% of the taxable value;
  • Municipal taxes paid to the local authority;
  • Interest paid on a loan taken for construction, repairs, acquisition, or renewal of the property;
  • Pre-construction period interest deduction (available as deduction in five installments from year subsequent to construction completion year).
  • Additionally, any repayment of principal amount against housing loan taken for such property is also eligible for deduction under section 80C.

As an NRI, person is  a resident of another country and hence  will come under that country 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  Indian Rental Income (Or any other income for that matter) the same could be taxed in your country as well. In such cases,  refer to the Double Taxation Avoidance Agreements that India has entered into with various countries.

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