Did you recently become a non-resident Indian (NRI) and have a residential property rented out in India? Here are a few important pointers which you cannot afford to ignore:
1. Rental income to be remitted in NRO account: Upon becoming an NRI, rental income has to be received in the non-resident ordinary or NRO account and cannot be continued to be received in the same account in which you got it when you were a resident citizen.
2. Residential status does not change rules per se taxation of rental income in India: By this we mean that whether you are a resident or non-resident Indian, you are liable to pay tax on rental income from property let out in India and in fact remains the same barring few things.
The taxable rental income is computed after deducting municipal taxes from gross annual value. Also, standard deduction @ 30% of this net annual value plus interest if any paid in case of a loan can be reduced to arrive at the taxable rental income.
It is to be noted that gross annual value is higher of the two i.e actual amount of rent received or the reasonable amount expected to be received by letting out such a property.
3. TDS implications change for the tenant: As per income tax provisions, tenant needs to deduct TDS at the rate of 10% on rent paid to the resident landlord except in a case when the rent paid or payable during the FY does not exceeds Rs. 1,80,000 or when the tenant happens to be an individual or HUF entity not liable for audit u/s 44AB in the previous financial year.
Even when the tenant is an individual or HUF and not liable for audit u/s 44AB, the tenant is necessarily required to deduct TDS @ 5% in case the rent on a monthly basis exceeds Rs. 50,000.
But in case the landlord happens to be a non-resident Indian as in the current case, tenant has to deduct TDS @ 30% plus applicable cess and surcharge i.e. 31.2%, irrespective of the rent amount and submit it with the authorities against NRI's PAN. Also form 15CA has to be submitted by the tenant online in respect of the remittance being made to the NRI.
4. NRIs can make use of DTAA and get credit for tax amount paid in India: In case the NRIs country of residence asks declaration of such an income as in the US, you can make use of the Double taxation avoidance agreement between the two countries i.e. India and the US, and get tax credit for amount paid in lieu of the rental income earned from India.
5. In case the let out property is jointly held by a resident and NRI: The taxation liability will be in the proportion of the ownership of the two individual who own the let out property. And in the ownership proportion shall be determined on the basis of contribution or investment made in the property.
6. Rental income is fully repatriable to NRIs country of residence: As the rental income is deemed as a current account transaction, the income earned from this source can be fully repatriated after obtaining a CA certificate in form 15CB that reflects all due taxes have been paid and the amount thereafter can be remitted to the NRIs account.