Rental Income

Having immovable property is a big love for every human being. NRIs and PIOs are not an exception to that. In India, NRIs and PIOs have been given special privilege under FEMA to acquire or hold immovable property in India. Immovable property is source of income generation by way of Rental. The same attract taxation provision as well. Salient features wrt rental income of immovable property are as under:

Salient Features wrt Rental Income of Immovable Property:

  • Income Head: Income of Rental is computed under the head of ‘Income From House Property’ (IHP) Head, whether it is rental income from residential property or commercial property.
  • Computation Mechanism: Total rental income from house property is calculated for a financial year (i.e. April to March of FY). Reduce the municipal taxes paid wrt the property during the FY. From the balance figure, two deductions are allowed. One is standard deduction of 30% wrt general repair, misc expenses. Second is for interest on borrowed money for acquisition of house property. Balance figure is taxable rent. Same exercise needs to be done for each property. Total of all property taxable income shall be Income from house property.
  • DTAA: Generally, NRIs are tax resident of some other country, where they are working & living. Tax arises in India and also in their resident country. Hence, double taxation. For the same, if there is a DTAA between their residence country and India, NRIs can seek course of applying DTAA, which generally provide that tax shall be payable in the country where immovable property situates. In absence of such clause also, as per DTAA they can also seek the benefit of availing tax credit for taxes paid in India. In absence of DTAA, they can seek avoidance of double tax as per local tax laws of their residence country. 
  • Tax Deduction at Source (TDS): Under the TDS Provisions (u/s 195), Payer (being tenant) is under obligation to deduct TDS before paying rental income to the NRI. Being non-resident, Rate of TDS on the rental income is maximum i.e. 30%. This tax rate can be reduced (upto nil) by applying for Tax Exemption/Reduction Certificate with the concerned Assessing Officer, if NRI is of the view that actual total tax liability is nil or lesser. Alternatively, NRI can claim the excess TDS as IT Refund in Income Tax Return.


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