Indian real estate segment has always been a lucrative section for NRI. Backed by an emotional factor, NRIs are keen to invest in Indian property market with their high disposable income and better investment prospects. Recent developments like RERA and demonetization has further accelerated the trust of NRIs in Indian Realty Sector by bringing into more transparency. Not just with the virtue of capital appreciation, NRIs are also looking Indian Real Estate Markets as a source of rental income. Following are the few aspects that need to be taken care of before renting out any property in India which is owned by NRI:
An NRI can acquire any immovable property other than farm-house, agricultural land, and plantation property after general permissions from Reserve Bank of India. Such property(s) can be acquired from the funds available in the Non-resident external (NRE) and/or Non-resident ordinary (NRO) account. He can also repatriate the required funds via normal banking channels by way of inward remittance. Payment in the form of foreign currency and traveler’s cheque shall not be entertained.
If any house acquired NRI is more Rs. 50 lakhs, a tax at source @ 1% is required to be withheld from the sales proceed and required to be submitted to the government on the behalf of a seller.
Any immovable property which is rented out in India is subject to income tax for its rental income as per the directive issued by Reserve Bank of India.
Rental income is permitted if the owner does not possess NRO accounts.
Certification from CA
The eligibility of remittance must be certified from a Chartered Accountant in India. Once the due tax is paid over the rental income, the Chartered Account is required to certify the same in form 15CB and Form 15CA (if taxable payment exceeds Rs. 5,00,00) stating the amount which is eligible for remittance. The overall remittance of the funds shall not exceed $ 1 million per financial year.
When the rental income arises after letting out the property in India by NRI:
- The rent has to be credited to the NRE/NRO account.
- It must be covered under the ‘Income from Property’ and shall be chargeable to tax subject to the existing income tax slabs.
As the tenant is accountable to deduct tax at source for the rental income, he must also require a TAN number. Besides this, he should also have PAN of NRI, his own PAN to deduct TDS U/S 195. A TDS certificate is required to be provided to NRI for IT purposes.
NRI often has a dilemma whether to rent out the property or not. Well, several factors govern this crucial decision. Most importantly, there must be a clear agreement stating all the conditions and must be duly signed by both the parties to avoid any hassle later on. Secondly, the trends of the area where the property is situated also play a vital role in deciding if the property shall be let out on rent or not.