NRIs have properties in India. These properties are either inherited or self-acquired. They buy houses for investment purposes or for self-occupancy when they are in India. Most NRI rent the property but what about Rent Income? What will be the Taxation of NRI Rent Income? Let’s check this today…

When an NRI is abroad he has the option to keep a locked house or they can rent out the house to earn some income. NRI Rent Income means additional Tax Liability. Hence, we need to check Taxation of NRI Rent Income.

Income may not always be a necessary thing in mind but an occupied property is well maintained and safe. Utility bills get paid, and taxes & maintenance fees are deposited on time. Hence, renting is good.

Also, I think NRI rent their house because if you have a resource that remains unproductive then it is a waste. It becomes a burden as it will always need expensive maintenance.

There are many benefits to NRIs for renting their house such as:

• The house will remain safe and managed by the tenants.
• Receiving rent is now not that much difficult through the NRO account and UPI. Landlords can receive rent from the tenants in any online or offline mode.
• Under the regulations, NRI funds up to $1 million may be repatriated in a financial year by transfer to NRE.
• If the total income of NRI including the rental income is less than Rs. 2.5 lakh then no taxes are applicable.
• If an NRI owns more than one residential property, one will be supposed to be self-occupied while the other deemed to be rented out. (Explained Below)
• You can divert your rental income as a greater investment plan or in any separate financial goals.
• There is a 5-10% escalation in rentals every year. So, you can SIP this amount from NRO a/c. Increment of each year can be used as a top-up in SIP plans.

Taxation of NRI Rent Income

In India, the Income accrued from rent is taxable. So, NRIs who may not be tax resident in India but if earns rental income by renting their property in India, the income is taxable.

According to the Indian Income Tax Act, if a taxpayer (resident or NRI) owns more than one house property, only one of them will be deemed as self-occupied.

So, the following chart will work:

(Table as in Excel)

So it is clear that there will be no income tax on a self-occupied property.

The other one, whether you rent it out or not, will be deemed to be given on rent. If you have not given the second property on rent, you will have to calculate deemed rental income on the second property (based on certain valuations prescribed by the income tax rules) and pay the tax thereof.

So, a vacant property also gives you income as per income tax act.

Some Points to note here are:

The tenant (payer of the rent) needs to obtain a TAN number and deduct TDS (currently it is 31.2%) on rental income.

NRIs should execute all the deeds and agreements for renting their house with the help of an expert. They should know about all the exemptions and deductions related to tax. A standard agreement of rent should have the following:

• Rent amount
• Mode and time of payment of rent
• Period of tenancy
• Penalty if the tenant violates any condition of the rent agreement
• Liability of tenant in case of damage to the property
• Mode of ending the tenancy – whether notice is required or not
• The notice period for vacating the premises
• Charges can be imposed if the tenant does not vacate the property on time
• Change in rent amount on a periodical basis, if any
• Renewal of lease, if allowed
• Maintenance of Property

Both the parties and independent witnesses must signed the Rent Agreement

Income Tax Slab Rates for NRIs

What about if NRI inherits a property in India

Once you inherit the property, you become the owner. The property will qualify for the same tax rules as if you had purchased the property. So if you have inherited a property in India and you already have one or more properties, you would have to pay tax on deemed income.

These deductions can be claimed from the NRI Rent Income

• Deduction of property taxes.
• 30% Standard deduction on taxable rent.
• Deduction for interest payment for a home loan if any.
• Under section 80c, Deduction for principal payment with a limit of 2 Lakhs per year.

What if NRI or Tenant Hides Rent?

Under Section 276B of the Income Tax Act, 1961, the taxpayer can be punished with imprisonment from 3 months to 7 years if the tax on rental income from NRI is not paid.

The tenant may also pay a penalty equal to the tax not deducted as per section 271C of the Income Tax Act.

Tax exemption on rental income for NRIs

If they have a certificate of exemption that states that their total income is below the exemption limit. Under section 197, with the certificate the taxpayer has to pay lower tax or no tax.

If they fall under the double tax avoidance agreement (DTAA, they can avoid double tax payments. If the NRI’s country of stay has no or low tax on rent, and this country has signed a DTAA agreement with India, NRI need not pay double tax on rental income from the property located in India.

To Conclude…

Taxation of NRI Rent Income is not simple and they should take the help of experts to manage all the legal actions and taxes and make it smooth for themselves.