As the NRI’s are allowed to buy residential or commercial property in India, any earnings generated from property located in India are subject to Indian taxation. Income that accrues or arises in India is taxable in the hands of NRI’s. Thus, if the Non-Resident has a property located in India and derives rental income from that property, he is liable to pay tax in India on the basis of Source Rule.
If you’re an NRI and own property in India, you’ll naturally be taxed here on your rental income. However, you might also face taxation in your resident country (let’s call it Country X) based on their ‘Resident Rule‘. This means your income could be taxed twice! Thankfully, to mitigate this, India has Double Taxation Avoidance Agreements (DTAA) with many countries. It’s worth checking if such an agreement exists between India and Country X to potentially save on taxes.
If India has no DTAA with another Country: –
If there’s no Double Taxation Avoidance Agreement (DTAA) between India and another country, both countries can tax the same rental income. But don’t fret! India’s Income Tax Act, under Section 91, offers a remedy against this. If you’re taxed again in Country X, you can claim a tax credit in India for the amount paid there, ensuring you’re not overburdened. Essentially, you’ll only end up paying the due tax in India.
If India has DTAA with another Country: –
Under Section 90, if you’re a non-resident eligible for a Double Taxation Avoidance Agreement (DTAA), you can seek relief through a Tax Residency Certificate (TRC). But when it comes to DTAA, the devil’s in the details. It’s important to check the specific agreement to see if India has the authority to tax your rental income. In most DTAA agreements signed by India, both your resident country and India can tax your rental income. However, some countries like Bangladesh, Greece, and UAR (Egypt) let only India tax the income from your property. In such cases, the issue of double taxation is automatically resolved. For other countries, the DTAA will specify whether they follow the Tax Exemption Method (meaning they won’t tax the income again) or the Tax Credit Method (where they give you credit for the taxes paid in India). This ensures that you don’t get taxed twice on the same income.
How Income Tax Laws Impact Your Tax Obligations
The individual paying rent to a Non- Resident must deduct tax at a rate of 31.2% as per section 195. This withheld tax is then remitted to the government’s credit by the 7th of the following month. However, the TDS deducted on rent from March can be deposited by the 30th of April. The remaining rent proceeds should be placed in the NRO (Non-Resident Ordinary) Account of the Non-Resident. It’s important to note that these funds cannot be deposited in the NRE (Non-Resident External) Account unless the person making the deposit is also an NRI, and the rental income is being transferred from their NRE Account.
Online Forms to Know:
Form 49B on the TIN-NSDL website: TAN Card Application (nsdl.com)
The tenant (payer of rent) needs to apply for TAN Number in Form 49B online
Form 15CA 15CB on Income Tax Portal: https://eportal.incometax.gov.in
Every person making payment to NRI shall after deduction of tax are required to furnish details in Form 15CA on the Income Tax Portal. In other words, Form 15CA needs to be filed every time, tenant pays rent to NRI. Further, if the rent payment exceeds Rs.5,00,000/-, Certificate from the Chartered Accountant also needs to be issued in Form 15CB.
Form 13 for Lower Deduction Certificate on Traces Portal: TRACES | Login (tdscpc.gov.in)
In case NRI considers that TDS deducted @ 31.2% is more than his actual tax liability, in that case he may apply for Lower Deduction Certificate (LDC) u/s 197 to the Assessing Officer in Form 13 on the Traces Portal.
Key Tax Considerations for NRIs on Rental Income:
Available deductions under Income Tax
Certain Deductions can be availed in respect of Rental Income:
- Deduction up to Rs.1,50,000 u/s 80C in respect of principal repayment of Housing Loan.
- Any municipal taxes paid for the subjected property.
- Standard deduction at a flat rate of 30% on the rental income derived after deduction of municipal taxes.
Loss under head “Income from House Property”
If the Interest paid by NRI on the housing loan exceeds the rent receipt during any financial year, in that case there occurs loss under the head “Income from House Property”, which can be set off with other heads of income up to Rs. 2,00,000. If loss cannot be set off from other income in the current financial year, it can be carried forward to next financial years for a maximum period of 8 years and can be set off only from the income under head “Income from House Property”.
Repatriation of rent receipts outside India
Rent receipts credited in NRO Account of NRI can be easily repatriated outside India, as the tax has already been deducted on such income. But the Reserve Bank of India has capped the amount to be repatriated outside India to US $1,000,000 per calendar year.
Ques: Whether withholding of tax on rental payments is mandatory?
Ans: Withholding of tax is mandatory on the rent paid to NRI, irrespective of the amount payable.
Ques: Can 15CA be withdrawn?
Ans: Yes, it can be withdrawn within 7 days from the submission date.