Income Tax on Rent earned by NRI in India

A large No. of NRIs settled abroad now own property in India and many of them have even given such properties on Rent. In this article, we would be focusing on the levy of Income Tax on Rent received by NRIs in India by giving such property on Rent.

Computation of Income Tax on Rent received by NRIs
Income Tax on Rent received by NRI is taxable under head House Property and is levied in the same manner as Resident Indian. Out of the Total Rent received by the NRI, Municipal taxes are first allowed to be reduced. After that, from the balance amount – 30% is allowed as standard deduction and Deduction for Interest paid on Home Loan is allowed.

Income Tax on Rent received in the country of Residence of NRI
If you have a property located in India, the rent received by the NRI from such property would be taxable in India. However, it may also be taxable in the country of your residence. Whether it is taxable in your country of residence depends on tax laws of the country in which you are residing. If that country has a double tax avoidance agreement (DTAA) with India, tax in such cases won’t be levied in your country of residence. Eg: USA has a double tax avoidance agreement with India and therefore the rent earned by NRI from property located in India is not taxable in the US.

TDS on Rent paid to NRI under Sec 195
In case the person receiving the rent is a resident Indian, TDS on Rent @10% is required to be deducted by the person paying the rent. However, in case the person receiving the rent is a non-resident Indian (NRI), TDS in such cases would be deducted at the much higher rate under Section 195. The rate of TDS would be 21% after considering the benefit of Standard Deduction. On top of this 21%, Cess would also be applicable and the effective rate of tax will become 21.84%.
However, the NRI may make an application to the income tax officer to issue a certificate for lower deduction of TDS. If the income tax officer issues such a certificate, then TDS on Rent paid to NRI would be deducted at the rates specified in the Certificate.

Other Provisions for Rent received by NRIs
If the interest on home loan is more than the rent received, there would be loss arising under head House Property which can be set-off with incomes under other heads. If the loss cannot be set-off with incomes under other heads, it can be carried forward for a maximum of 8 years and set-off against income arising in future years.
The rent proceeds will have to be credited to the NRO Account of the NRI. It cannot be credited to the NRE account, unless the person crediting the account is also an NRI and is getting it debited from his NRE account.
No RBI permission is required by the NRI at the time of giving any residential or commercial property on Rent.
NRI’s should also file ITR at the end of the year and if any excess TDS has been deducted, they should claim a refund of the same.