House Property income of NRI’s in India
Property is a favourite Indian asset because of its ability to generate regular cash flows through rent. As per section 5(1) of Income-tax Act, global income of the Resident is taxable in India. In case of non-resident, income which is received or deemed to be received or accrues or deemed to accrue in India is taxable as per section 5(2). As per section 9(1)(i), income from property is taxable in India. Definition of NRI for the purposes of repatriation will be that of the FEMA and for the purposes of income tax, it is given in section 6.
Some critical issues on NRI income from property
- Rent proceeds can be credited to the NRE or NRO account. Rent proceeds received in these accounts can be freely repatriated. If the NRI does not have an NRE or NRO account, the proceeds can also be directly remitted abroad, but the NRI would need an appropriate certificate from a chartered accountant certifying that all taxes have been duly paid.
- As per section 195, tax will be deducted at source by the payer of the rent. The payer of the rent must obtain a TAN number and deduct TDS from the rent amount. He must also provide a TDS certificate to the NRI.
- NRI is also a resident of another country for tax purposes.
- In most cases, countries levy tax on residents on their global income. In such cases, we need to refer to the Double Taxation Avoidance Agreements (DTAA) that India has entered into with various countries.
- India-US DTAA for instance, provides that rent from immovable property will be taxed in the country in which the property is situated. So NRIs who are residents of US would have to pay tax on rental income in India. However they would still have to declare that income while filing their tax returns in US. They would get credit for taxes paid in India.
- Deemed rental income will also apply to NRI: There will be no income tax on a self-occupied property. The other property, whether rented out or not, will be deemed to be given on rent. If the NRI has not shown the rent on second property, it has to be calculated as per provisions of section 23.
- Income Tax Act does not specify if either or both these properties must be situated only in India. From the reading of the IT Act, the rule of ‘more than one property’ will apply to global properties, not just to the properties situate in India. In other words, if an NRI owns a house in any other country and lives there, he will have to pay tax on the property in India.
- Example, if an NRI is resident in USA and he owns and lives in a house in USA. He also owns a house property in India. Even if he does not give the property in India on rent, he would have to pay income tax on deemed rent in India determined as per section 23.