For Non-Resident Indians (NRIs) considering renting out properties in India, understanding the tax implications is paramount. This comprehensive guide breaks down the key considerations, including property listing, rental income taxation, deemed rent, and the role of Tax Deducted at Source (TDS).
Listing Your Properties
As an NRI with multiple properties in India, listing each one is a prerequisite. NRIs have the legal right to rent out their properties in India, provided they fulfil taxation requirements on the rental income. The tenant can choose to pay the rent in two ways, offering flexibility to both parties involved.
Payment Options for Rent
Firstly, the tenant can transfer the rent to the NRI’s Non-Resident Ordinary (NRO) account, which allows repatriation of up to $1 million per financial year. Alternatively, the tenant can utilize the NRI’s bank account in their country of residence. However, this method requires the submission of Form 15CA to the Income Tax Department. In some cases, Form 15CB, containing transaction details certified by a chartered accountant, may also be necessary.
Understanding Deemed Rent
NRIs should be familiar with the concept of deemed rent, particularly if they possess multiple properties in India that could potentially be rented out. The taxation scenario varies based on whether the property is self-occupied or rented out. The concept becomes crucial for NRIs managing multiple properties and determining their tax liabilities.
Taxation Rates on NRI Rental Income
Taxation on rental income for NRIs in India is based on the marginal tax income rate applicable to NRIs. The income from rental properties is added to other income sources like salary and capital gains to calculate the total income. Applicable tax slab rates, along with a 4% education cess and surcharge, are then applied. NRIs whose total income falls below Rupees 2.5 lakh are exempt from taxation. If the income exceeds the exemption limit, taxes are deducted at the source at a rate of 31.2%.
Role of Double Tax Avoidance Agreement
NRIs residing in countries with a Double Tax Avoidance Agreement (DTAA) with India can avoid double taxation on their property income. Approximately 90 countries, including the US, the UK, Canada, and Australia, have a DTAA with India, providing relief to NRIs from dual taxation.
Factoring in TDS Rates
When the income from rental properties exceeds the exempted limit, the tenant is responsible for deducting tax at the rate of 31.2% as Tax Deducted at Source (TDS) per month. Obtaining a Tax Deduction and Collection Account Number (TAN) is mandatory for the tenant. The due TDS amount must be deposited, and the TDS certificate passed on to the NRI. A tax refund can be claimed after filing returns if the TDS amount surpasses the tax liability.
Renting out properties in India as an NRI involves meticulous consideration of tax implications. By understanding property listing, deemed rent, taxation rates, DTAA benefits, and TDS processes, NRIs can navigate this process efficiently, ensuring compliance with Indian tax regulations and maximizing returns on their investments.