For NRI’s, mere acquisition of property in India does not attract any income tax. However, any income earned from that property like rental, lease income and/or capital gains arising on the sale of this property is taxable.
Tax implications on the rental income: NRI’s who earn income from rental property which is situated in India would be taxable under “Income from House Property” in India. It may also be taxable in the NRI’s residence country.
Note: The rental money earned cannot be deposited anywhere else except either NRE account or an NRO account.
If the total Income earned in India including rental income is more than the minimum tax exemption limit, then NRI’s must file the returns in India.
If the rental income in a year exceeds one lakh rupees – the owner of the property needs to provide PAN details too.
If an NRI has a property in India which is vacant and not rented out, the property would still be considered for tax under ‘deemed to be let out’.
However in certain cases, the NRI’s can actually claim several deductions.
The deductions allowed are 1. Municipal taxes paid; 2. In remaining balance, 30% is allowed as Standard deduction; 3. Interest paid and principal amount against housing loan taken for that property is also eligible for deduction under section 80C of income tax act in India.
The NRI needs to pay TDS as well: The tenant is required to deduct TDS at 30.9% under section 195 before making a rental payment to the NRI owner.
The rent can be paid to a NRI account in India or the NRI’s account in the country he/she is currently residing but NRI’s cannot simply withdraw the money from the bank account.
He/She has to pay all due taxes first. Once it is paid, he/she needs to get a certificate from chartered accountant using Form 15CB. In a single financial year not more than $1 million can be remitted outside India.
The tenant needs to pay the rent directly to the NRO account. The only time the tenant can pay the rent to an NRE account is when the tenant himself is an NRI and the rent is getting debited from his NRE account.
A tenant paying rent to a Non Resident has to submit Form 15CA online. Form 15CB is also required in certain before uploading Form 15CA online.
Form 15CB will have the details of TDS rate and TDS deduction, details of all due taxes have been paid and that the remaining balance amount can be remitted to the bank account, details of if any Double Tax Avoidance Agreement is applicable etc.
Form 15CA and Form 15CB are required only for any taxable payment exceeding 5 lakhs for which Assessment certificate is not obtained.
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