Analysis of Income from House Property (Part 4)
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In the previous series, we have discussed about various provisions related to House Property income, its computation and some FAQs as well. In this series, I want to take up a special topic in relation to house property income- tax position in case of Non-Resident Indians.
Well, this is one confusion that all non-resident Indian are in right now. So here in this series, I am going to cover some of the basic questions that may come in their minds.
We all are aware of the fact that a non-resident is taxed on his/ her income sourced from India. There are a number of Non-resident Indians who although have settled abroad but they still own house property in India. Since the house property is situated in India, the rental income sourced therefrom arise in India. Thus, taxability comes into the picture in the following manner:
Computation of rental income from house property situated in India:
|Particulars||Amount (in INR)|
|Gross Annual Value||XXXX|
|Less:||Municipal taxes paid||XXX|
|Net Annual Value||XXXX|
|Less:||Deductions under section 24|
|24(a): Standard deduction at the rate of 30%||XXXX|
|24(b): Interest on Home Loan||XXXX|
|Income from House property||XXXX|
The net income would be taxable as per the slab rates applicable to the non-resident individual.
If the interest on home loan is more than the rent received, there would be a loss under the head house property income.
Loss from house property can be set off with other heads of income. If the loss cannot be fully adjusted in the year in which such loss is incurred, then unadjusted loss can be carried forward to next year. In the subsequent years(s) such loss can be adjusted only against income chargeable to tax under the head "Income from house property".
Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred.
It is pertinent to note here that the loss can be carried forward even if the return of income/loss of the year in which loss is incurred is not furnished on or before the due date of furnishing the return, as prescribed under section 139(1) .
The rent proceeds should be credited to the NRO account of the individual. It cannot be credited to the NRE account, unless the person crediting the account is also an NRI and is getting it debited from his NRE account.
No RBI permission is required by the NRI at the time of giving any residential or commercial property on rent.
Thus, if the house property owned by a non-resident Indian is situated in India, the income therefrom would be taxable in India. It is pertinent to note here that such income may also be taxed in the country of residence of the non-resident Indian. In such cases, double taxation may arise for which one may need to resort to double taxation avoidance agreements.
Who is Non-Resident Indian?
As per the Indian Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India.
An individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:
1. If he is in India for a period of 182 days or more during the previous year; or
2. If he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.
However, condition No. 2 does not apply where an individual being citizen of India or a person of Indian origin*, who being outside India, comes on a visit to India during the previous year.
*A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India
For example, while you are an NRI, you were physically present in India for more than 182 days during one financial year. In such a case, you will be considered as a resident when it comes to taxes and you are obliged to pay taxes to the Indian government for the income earned in India, if any for that year.
In case of resident taxpayer all his income would be taxable in India, irrespective of the fact that income is earned or has accrued to taxpayer outside India. However, in case of non-resident all income which accrues or arises outside India would not be taxable in India.
TDS on rental income:
The tenant is required to deduct TDS before making rental payments to the NRI @ 30.9% effectively subject to any beneficial provisions of the Double Taxation Avoidance Agreements entered into between India and the foreign country.
For instance, India and USA has entered into a double taxation avoidance agreement, according to which rental income from an immovable property will be taxed in the country in which the property is situated. So non-resident Indians who are residents of US would have to pay tax on rental income in India. They would still have to declare that income while filing their tax returns in the US, they would get a credit for taxes paid in India.
Post deduction of tax, repatriation of income can be done to the non-residentafter payment of due tax by obtaining certificate of a chartered accountant in form 15CB, stating that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid.
Now there can be two situations –
When the total Income of the NRI is less than the minimum exemption limit – If TDS has been deducted on rental income, a refund may be due to the NRI. The only way to claim a refund is to file an Income Tax Return. All TDS deductions are linked to the PAN and the NRI can check these details from his Form 26AS.
Example: Virat, a non-resident Indian has a house property situated in Mumbai. He earns a rental income of INR 10,000 per month during the FY 2015-16. He has paid a municipal tax in India for INR 5,000. There is also an outstanding house property loan, for which interest charges amounting to INR 6,000 and principal amount of 72,000 are paid
|Income from House Property|
|Gross Annual Value||120000|
|Less: Municipal taxes||5000|
|Net Annual Value||115000|
|Less: deduction under section 24(a) at the rate of 30% (standard deduction also available to NRI)||34500|
|Less: deduction under section 24(b) for interest on housing loan||6000|
|Income from House Property||74500|
|Gross Total Income||74500|
|Deductions under section 80C|
|House property loan on Principal amount||72000|
|Income tax as per slab rates||NIL|
|Less: Tax deducted at source on rent received at the rate of 30%||36000|
Now, this amount of refund can also be claimed once the non-resident Indian files a return in India.
When the total income of the NRI is more than the minimum exemption limit – In such a case whether or not TDS has been deducted the NRI must file a return and pay the tax which is due. In case TDS has been deducted it is adjusted against his final tax liability. Since TDS is deducted at 30% and this rate of tax is applicable in the highest tax slab of income more than Rs 10lakhs, a refund situation may arise if the total income of the NRI is in a lower tax slab.
Example: If in the above example, Virat earns a rental income of INR 100,000 per month (instead of INR 10,000) during the FY 2015-16, paid a municipal tax in India for INR 12,000, interest and principal amount paid for outstanding loan amounting to INR 16,000 and INR 175,000, respectively, the following would be the tax implications:
|Income from House Property|
|Gross Annual Value||1200000|
|Less: Municipal taxes||12000|
|Net Annual Value||1188000|
|Less: deduction under section 24(a) at the rate of 30% (standard deduction also available to NRI)||356400|
|Less: deduction under section 24(b) for interest on housing loan||16000|
|Income from House Property||815600|
|Gross Total Income||815600|
|Deductions under section 80C|
|House property loan on Principal amount||175000|
|Income tax at the following slab rates|
|Next 250,000, at the rate of 10%||25000|
|Remaining 359,400 (10,00,000-640,600) at the rate of 20%||71880|
|Total tax liability including education cess at the rate of 3%||99786|
|Less: Tax deducted at source on rent received at the rate of 30%||360000|
Acquisition of immovable property in India by a non-resident Indian:
An NRI can acquire an immovable property in India, other than agricultural land, plantation property or farm house under the general permission of the Reserve Bank of India. Please note that Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain permission of Reserve Bank
- The property can be acquired from funds lying in the non-resident ordinary (NRO) and/or non-resident external (NRE) accounts. Alternatively, he can directly repatriate the funds through normal banking channels by way of inward remittance. He can’t, however, make the payment by way of travellers’ cheques and/or foreign currency notes or any other mode.
- The mere acquisition of property does not attract income tax. However, if the house is acquired for INR 50 lakh or more, you will need to withhold tax at source at 1% from the payment made to the seller and deposit it to the credit of the government on behalf of the seller. This provision is applicable for both residents and NRI.