Real estate property has always been one of the favourite asset classes of Indians. This is because it can generate a regular cash flow and show visible asset appreciation. As for NRIs, they rent out their properties to generate a rental income on the side.
When an NRI rents out his or her property in India, the rent proceeds can be credited to their NRE or NRO accounts, from where the rent can be freely repatriated.
Laws Governing Renting Property In India
There are some strict rules that an NRI landlord might have to follow to earn from their Indian property. The rent is transferred by a tenant to an NRO (Non-Resident Ordinary) account or an NRE account of the NRI landlord. And from there, it can be transferred to their bank accounts.
It can also be remitted directly to the foreign bank account of the NRI landlord, in which case, the landlord will be required to contact the Income Tax Department with all payment details specified including TDS rates.
Is There Any Tax On Rental Income In India?
As the income is being generated in India, the landlord will have to pay an income tax on rental income, as per the marginal income tax rate applicable for NRIs. The tax is usually deducted from rental income at the source .ie. by the payer, and for this, the payer must obtain a TAN (Tax Collection and Collection Account Number) number and deduct a TDS of 30% from the rent amount will be deducted every month.
What Is A Deemed Rental Income?
The Indian Income Tax Act states that if a person owns more than one residential property, then only one of them will be deemed as self-occupied. And as per the income tax act, there will be no income tax on a self-occupied property.
That implies even if the other property is rented out or not, in either case, it will be deemed a rental property. But the act hasn’t specified if one or either of them need be in India, but since more Indians have started settling abroad, it is assumed that the property will be counted globally.
Possible Income Tax Exemptions
A rental owner can excuse themselves from paying taxes if the total income of NRI (including rental income) is less than Rs. 2.5 lakh, in that case, they won’t have to pay any taxes on the rental income earned from India. Similarly, if one’s total income in India (including rental income) is below Rs. 16 lakh, they can avail a TDS exemption as well.
But to access and avail of the TDS exemption, you will have to get an authorized tax exemption certificate and submit it to your tenant.
What Is A Double Tax Avoidance Agreement?
A DTAA or Double Tax Avoidance Agreement would be a tax treaty signed between India and another country (or multiple countries) to set out norms in such a way that a taxpayer doesn’t have to pay double tax (to both governments) on the income earned from the source country and the country of residence.
Generally, as per the agreement, it is the country where the property is situated which gets the taxing rights. India has DTAA in around 90 countries already.
It is advisable that you read through the taxing policies. Assetmonk is an online investment platform, where investors can very easily find high-return generating real estate properties. As we bring a unique approach where everything is just a click away from you, you can invest from any part of the world and generate high income. Our online website is a hub for NRI real estate investors as Assetmonk also offers remote investments in fractional as well as crowdfunded properties in Bangalore, Chennai, and Hyderabad at an attractive annual IRR of 14-21%.
If you are an NRI investor looking to earn from Indian Real estate the Assetmonk is the best place for you.
Yes, rental income is taxable for an NRI as the income is generated from a property in India, and as per the Indian Income Tax Act, the property and income generated can be taxed.
You cannot avoid paying tax on rental income but in some conditions, you can be exempted from paying taxes. For instance when the total income of an individual earned in India is less than Rs. 16 Lakh then they will be exempted from paying the 30-31% TDS.
The TDS paid is usually 30-31% on rent paid.