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For many Non-Resident Indians (NRIs), owning a property in India is more than just a real-estate investment. It may be an ancestral home, a future retirement asset, or a source of steady income through rent.
But once that property starts generating rental income in India, a common question arises:
Do I have to pay tax in India on the rent even if I reside in the USA?
The answer is yes. Income from immovable property is generally taxed in the country where the property is situated. Hence, income from a property in India is taxable in India even if the owner is residing in another country.
For example, Inder, an NRI in New York, owns an apartment in Mumbai that he has rented out. He lives in the US all year, but the rent from that Mumbai flat is still taxable in India. That does not mean he pays taxes twice on the same income. India has a Double Taxation Avoidance Agreement (DTAA) with the US, Inder can typically claim credit in the US for tax already paid in India or otherwise get relief, so the same income isn’t taxed in both the countries.
Now, what if an NRI owns more than one residential property in India?
NRIs who own multiple homes in India should also be aware of the concept of deemed rent. While up to two properties can be treated as self-occupied, an additional property that is vacant can be treated as deemed to be let out and thus be taxed as if it were being rented even if no rent is actually received.
For example, Ritika, an NRI, who lives in Dubai, has three flats in India. One is rented out. One she uses during her visits to India. One in Pune stays empty all year.
Here is the part that surprised her. Even that empty flat gets taxed. It does not matter that no one lives in it. The law assumes she could have rented it out, so it taxes her on that rent, even though she never received it.
If you own more than two properties in India, it is worth working out which two to call self-occupied. That one choice can change your tax bill by a meaningful amount.
So, how is tax on that rental income actually calculated?
NRIs earning rental income from property in India are allowed to claim deductions such as municipal taxes, a standard deduction of 30% of the Net Annual Value (NAV), and interest paid on a housing loan.
But before we get to final tax liability – why is the rent received often less than what was agreed?
Many NRIs are surprised when the rent that lands in their account is less than what was agreed. The reason is simple. Tenants are required to deduct TDS before paying the rent. As a result, the rent actually received may be lower than the contractual rent and filing an income tax return in India may become necessary to claim any eligible refund.
By understanding these provisions and complying with the applicable tax requirements, NRIs can efficiently manage their Indian rental income while optimizing their overall tax position.
The opinions and views expressed in this article/column are those of the author(s) and do not necessarily reflect the views or positions of South Asian Herald.
