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Is tax payable on rental Income of NRI

Chinnappan D M (Consultant) (96 Points)

13 October 2009

My son is a Non-resident Indian having a flat which is fetching him a rent of Rs.30k per month. The rental amount is credited to his NRO a/c. As per current Fema guidelines the rental income can be repartriated to his country. Is there any tax payable on such rental income before remitting the amount in foreign c urrency?

Can an NRI avail Foreign currency loan for purchase of a residential property in India?

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7 Replies

VARUN (PCC STUDENT) (523 Points)
Replied 13 October 2009

I think in ur case income is accruing, arising in India which is taxable for the NRIs.

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praveen (Chartered Accountant) (6971 Points)
Replied 13 October 2009

yes if the property is India it is deemed to accrue or arise in India and hence tax is payable in India.

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 13 October 2009

Dear Mr. Chinnappan,

For payment of any Income to NRI section 195 of the I T Act comes into action. As per section 195 the tenant is require to deduct tax at source from the amount payable as rent. However many of such tenants fails to deduct tax and pay the full rental amount and insuch case, the Authorised Dealer (Banks) are adviced by RBI/Income Tax that before remitting any money outside India the remittor has to obtain/furnish form 15CA/CB which shall take care of applicable tax incidents. In your case too, before remitting the income of rent to NRE A/c. or outward Remittance in FC to other foreign country Account, Bank shall ask for these certificates and your son can obtain this certificate only after payment of applicable advance tax on estimated Income as TDS is not made.

Thanks

Rajeev (www.rkmco.com) (985 Points)
Replied 15 October 2009

Is tax not deducted by the payer ? , if its not deducted , there may be a reason to do so .

The Tax has to be deducted by the person who pays the rent , Its not to be deducted by you

But yes , your son is liable to tax in india since such income is deemed to accrue in india .

you are under no obligation to deduct tds, but yes he is under obligation to file his ITR and pay his taxes

he can also get his money transferred without any issues , its just a transfer from his own NRE a/c to his own account , its looks a capital transcation, the remitting bank may ask for some declarations as per Fema

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 15 October 2009

Dear Rajeev Sir,

In relation to your Experty advice i.e. "he can also get his money transferred without any issues , its just a transfer from his own NRE a/c to his own account , its looks a capital transcation, the remitting bank may ask for some declarations as per Fema" I would like to clarify below;

As per Para 3 of Master Circular No.04/2009-10, dated 1-7-2009

3. Remittance of current income

3.1 Remittance outside India of current income like rent, dividend, pension, interest, etc. in India of the account holder is a permissible debit to the NRO account. Authorised Dealer banks may allow repatriation of current income like rent, dividend, pension, interest, etc. of NRIs who do not maintain an NRO account in India based on an appropriate certification by a Chartered Accountant, certifying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid/provided for.

3.2 NRIs/PIO have the option to credit the current income to their Non-Resident (External) Rupee account, provided the Authorized Dealer bank is satisfied that the credit represents current income of the non-resident account holder and income tax thereon has been deducted / provided for.

In view of para 3.2, AD has to satisfy himself about the tax deducted/provided which most of the AD relies on CA certi (form 15CB) to effect the credit of Current Income. Further, as per prevailing Banking practice/RBI office manual, the Tax clearance certificate is to be obtained and it is to be reported to ITD which is now to be done in Form 15CA.

My view is further supported with a pratical example;

Say Mr. Chinnappan's Son is sucessful in depositing the amount of rent Income in NRE A/c. without obtaining Form 15CA/CB. Now, as NRE is freely repatriable Account his son can repatriate the amount any time with any restriction/formalities. So, the requirement of TDS/Tax paid also form 15CA/CB is to be satisfied at the time of depositing such Income/amount.

I request Rajesh Sir/other experts to correct me if I am wrong.

Thanks

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work is worship (Service) (2728 Points)
Replied 20 October 2009

what if the house property is purchased from the foreign income earned by the individual.

Rajeev (www.rkmco.com) (985 Points)
Replied 20 October 2009

Subra,

Whatever the income subra , foreign or local , if the house property is in india , the income so earned from rental income will be deemed to arise in india