A significant number of NRIs who have settled abroad may own a property in India and many of them have even rented out such properties. The income tax would then be levied in hands of the NRI for renting out those properties.
Here’s a read to know if an individual is considered to be a non-resident Indian (NRI).
The Income from house property will be taxed at slab rates while filing ITR in India.
And also the NRIs will be allowed all deductions, including 30% of the standard deduction and a deduction on interest payable on a home loan.
Basically, the tax implications are almost similar to a resident Indian. The only difference is that if a tenant pays rent to the owner of the property who is NRI, then the tenant has to deduct TDS at a rate of 31.2% from such rent at the time of payment.
Here’s an example of how taxes on house property income earned by an NRI would work:
Let’s say, you’re an NRI, owning a property in India, and earning a rental income of ₹2,00,000 per year from it. The property is not used for any business or profession.
The first step in calculating the tax on this rental income is to determine the net annual value (NAV) of the property. This is calculated by subtracting the property taxes and any other allowable deductions from the gross annual rent received.
Let’s assume, the property taxes add up to ₹50,000 per year. Next, you would be allowed to deduct a standard deduction of 30% on NAV under section 24 of the income tax Act, here’s the computation of house property income explained below,
| Particulars | Amount |
|---|---|
| Gross Annual Value | ₹2,00,000 |
| Less: Property Tax Paid | ₹50,000 |
| Net Annual Value | ₹1,50,000 |
| Less: 30% Standard Deduction | ₹45,000 |
| Interest on Home loan | Nil |
| Income from House Property | ₹1,05,000 |
Now, since you’re an NRI, you would be subject to TDS at the rate of 31.2% on the taxable income. This is applicable irrespective of the amount received.
However, if the total income in India does not exceed the basic exemption limit of ₹2,50,000 (for the financial year 2022-23), you can file Form 13 to avoid TDS.
In addition, if you’re a resident of a country with which India has a Double Taxation Avoidance Agreement (DTAA), you may be eligible for a tax exemption, subject to certain conditions.
Other Key Considerations
If the Interest on a home loan is more than the rent received, then there would be a loss arising under the house property income which can be set off against other allowable incomes and if not then can be carried forward for a maximum of 8 years.
NRI is mandatorily required to file an ITR if any income is arising from/in India. In case any excess TDS has been deducted, can claim a refund for the same while filing ITR in India.
NRI receiving income from house property is required to file Form ITR-2. The return must be filed by July 31st of the following financial year.
If any questions, ask them out!