NRI may have a property in India that can be given on rent. Here provisions of various taxation Provision will prevail. For instance, TDS on rental Payment and Taxability on the Rental payment. Let’s discuss the legal aspects of the NRI property when given on rent.
Whether NRI can earn Rental Income from India?
So, the answer is Yes. NRI can earn Rental Income if he owns House Property in India. Thereafter Rent Proceeds will be credited to the NRE or NRO account and it can directly be remitted top abroad but a certificate from a practicing Chartered Accountant will be required to that extent ensuring that all the taxes have been paid.
Taxability of Rental Income- If we talk about taxability then rental income will be taxable as it is earned in India. As per Income tax law, Tax will be Tax deduction at source by the payer of the rent and the payer will be responsible for deducting the TDS at the rate of 30%. As the responsibility is lied upon the Payer to deduct TDS then if the tenant doesn’t deduct TDS and NRI fails to declare the Income and not paying the Tax then the Income Tax Authority held responsible to Payer for Noncompliance of Income Tax provisions.
Taxation Country- As the Income earned in India will be taxable under the Indian Income Tax law and recovered by the government by way of Deduction of Tax (TDS). Moreover, In case Income is also taxable in the Country of residence of the NRI then, in that case, one has to refer the Double Taxation Avoidance Agreement (DTAA) to claim relief of Income taxability.
Another Important note- Whenever the rent is paid to the NRI by the resident of India than the Indian resident payer is required to deduct Tax on rent payment and pay taxes. On every rent payment, Payer is required to file Form 15CA on the Income-tax portal. However, if the rent payment exceeds 5 lakh in a year then Form 15 CB is required to be obtained from the Chartered Accountant.
Defining the Deemed Rental Income- As per the Income-tax provisions, if the person owns more than one house property then one of them will be declared as Self Occupied property and the other will be deemed as Let out the property. It is also even in the case where the other House property is not given on rent then for the income tax purposes, it will be considered as Deemed Let out the property. Then income from such property on this either as a deemed or actual rental will be taxed accordingly.
Deemed taxability in a foreign country- When the Income is taxable as Deemed rental Income then it will not be taxable in a foreign country and this taxability also depends upon the Tax Code of the relevant country. However, according to various Tax Experts, Investment in the property must be shown in the Income Tax Return of the US. It is just because when the property is sold then difficulty may arise for calculation of Cost of Property like the application of Depreciation, improvements or Repairs & Maintenance.
The purchase of property by NRI- An NRI having a valid Indian passport can acquire any number of immovable properties in India both residential and commercial other than agricultural land, plantation property, and farmhouse unless it is acquired as a result of succession or gift. Section 80C on the Income Tax Act, 1961 empowers an NRI to claim a deduction of Rs. 1.5 lakhs on the acquisition of the property.
Permission required before Sale: When the NRI wants to sell the property in India either it is as Residential or commercial property other than Plantation or Farm House or Agriculture Land then he is required to obtain RBI’s permission for proceeding ahead.
Some Cautions that NRI has to take -It’s being a good idea to have a property rented to reap a benefit out of it. As instead of selling and maintaining the property can be lead to so cumbersome Procedure, It is always been a better option for the NRI to rent out the property that lies vacant so that the property either Residential or Commercial can be properly utilized. Especially when the Rental property is on-demand on a high peak, better to go with Rental the property following the legal procedure. Moreover, there has been a sharp increased in the rental amount in especially Metro cities may it is of an increase of about 15% or 14% or 18%. The benefit of letting out the property is that it not only help NRI to have an ample amount of income from Property but also can get rid off from the tension of Maintenance of the Rental Property. The trend has been changed when NRI most of the time used to try to buy property in India, so now it will a good decision to rent out the property on legal terms.
Types of Rental Agreements –
• Rental Lease Agreement:- Under this, the rental agreement provides the Tenant to sublet the Rented property to the extent covered in the Rental Agreement. And under this type of agreement, The lease agreement isn’t terminated if the owner of the property dies suddenly.
• Leave and License Agreement:- Under this type of agreement save the owner of the property and ensures his/her safety. Further, there cannot be control over the rent, and the Tenant cannot sublet the property. And furthermore, if the property owner passes away then that agreement doesn’t terminate automatically
Tips while Renting out the property-
1. Background Check – Employment records, ID proofs, credit checks, previous address of residence, etc of the tenant are required to be taken before renting out the property as these are the essential documentation for initial the rental agreement.
2. Decide and Analyse- Renting out the property only when the NRI is making sure of the legal documentation whether they are appropriate or not and after you have done the background checks.
3. Abide by the Law- Inform the police before renting out the property by the NRI is mandatory in many cities. As informing all these aspects will safeguard your interest in the Rental Agreement.
4. Assistance from the Experts- A perfect advice can be taken from Professional Lawyer rather than the real estate broker for drafting the rental agreement. It will overall ease the Rental Process at the end.
5. Assigning the Power of Attorney- It is safe to have a power of Attorney to any of the Indian residents on whom trust can be maintained and who can take care of the legal formalities like signing documents, renewing agreements, and others as such in your absence.
6. Rental agreement registration- It should be taken care of that Registration of rental agreement should be done after paying the required stamp duty charges.
7. Obtain the No objection Certificate – In order to avoid any grievances in the future, it is required to obtain the NOC from the housing society or neighbors so as to there will be healthy Living therein as well.
8.Rental Agreement Validity- The ideal validity of any rental agreement is eleven months so, if you are fine with your Tenant then the rental agreement can be get renewed or get extended.
Finally, in this article, we have discussed all rental property and rental income earned and their taxability under Indian Income Tax law and various other advises regarding their renting of property. However, if you need any further clarifications you can anytime reach out to us with your queries.