Every person who has relocated out of India, has at one point or another faced issues with respect to taxability of his income earned in India. In this article we shall be looking at the aspects that cover taxability of rental income earned from property situated in India for an individual who has been assessed as an NRI as per the Income Tax Act, for the relevant assessment year.

For determining your residential status, you can refer my previous article, https://taxguru.in/incometax/residential-status.html.

Now that you’ve been determined as an NRI for the current assessment year, and you have rental income from a property that you own, such income shall be subject to Income Tax in the relevant year. Now, we shall look into the compliance aspect of reporting such taxable income:

Taxability of Rental Income received by a Non- Resident Individual (NRI)

Before carrying out any remittances, the tenant shall have to make the following compliances:

  • Deduct TDS as per the provisions contained in Section 195 read with the relevant Article of the DTAA between India and the country in which the NRI stays. In most situations, the rental income is wholly taxable in India and hence TDS of 30% has to be withheld accordingly.
  • Deposit the TDS deducted with the Income Tax Dept. and file TDS Return in Form 27Q in accordance with Rule 31A of the Act.
  • File certificates in Form 15CB, issued by a CA and Form 15CA with the bank only after which the remittance can be wired. Form 15CB is compulsory if your income to be remitted is greater than Rs.5,00,000, otherwise, only Form 15CA should suffice. You can refer https://taxguru.in/income-tax/tax-compliance-procedures-facilitateforeign-remittances.html which explains all the compliance provisions laid down in Rule 33AB for making any foreign remittance which may/ may not be liable to tax.

OR

If possible, make a request to the IT Dept. in Form No. 13, to issue you a ‘Low Deduction Certificate (LDC)’ governed by provisions under section 197 read with section 195(3) of the Act, which shall grant you the privilege of either deduction of TDS at a lower rate or non- deduction of TDS. However, Part B of Form 15CA has to be compulsorily filed, even if you receive the ‘LDC’. However, granting an LDC is purely on your Assessing Officer’s discretion and once he is satisfied that all your documents are complete and you’ve never made a default in paying taxes in time, he may grant you the LDC.

Deductions available under the Act, which you can avail with respect to rental income received:

1. Deduction for principal/ instalment paid for housing loan taken for the property up to Rs.1,50,000 after satisfying conditions enlisted u/s 80C.

2. Deduction for interest payable in the financial year on capital borrowed for construction/repairs/reconstruction up to Rs.2,00,000 as per provisions contained in section 24.

3. Any taxes paid to the local authority (Municipal Taxes) for the subject property.

4. Standard Deduction of expenses at a flat rate of 30% on the rental income reduced by the municipal taxes paid to the local authority.

The same can be illustrated with an example below:

Suppose an NRI has received rental income of Rs.6,00,000 for a property situated in Delhi. He has an underlying loan for which an instalment of Rs.1,80,000 has been paid and an interest amounting to Rs.1,40,000 has been paid. He has also paid Local Municipality Taxes amounting to Rs.25,000 for 15 months.

Net taxable income after taking all the provisions under consideration has been computed hereunder:

Particulars Amount (in Rs.)
Gross Rental Income for the year 600,000
Municipal Taxes paid (Irrespective of the number of months for which it is paid) (25,000)
Net Rental Income for the year 575,000
Standard Deduction @30% (172,500)
Deduction for Interest payable for year (140,000)
Income under head House Property 262,500
Deduction u/s 80C for payment of instalment (restricted to Rs.1,50,000) (150,000)
Net Taxable Income 112,500

International Taxation is surely a tough nut to crack. With reduced boundaries and increased globalisation, harmonising taxation laws of different countries is an inevitable but a really difficult task. It can be achieved only with combined efforts of accountants and taxation experts. Don’t worry, we’re there at your beck and call to resolve all your queries. You can contact Sakshi Jain at sakshijain.1995@outlook.com for any doubts that come your way. We’d be happy to serve.

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Qualification: Student - CA/CS/CMA
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Location: New Delhi, New Delhi, IN
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