Tenants paying rent to NRIs are required to deduct TDS

I have a house in Bengaluru, that has been lying vacant for nearly five years. I plan to rent it out soon. What are the tax rules applicable to NRIs for rental income received in India?

—Khushi Grover

Rental income earned from an asset located in India is taxable in India. You must report this income in India by filing a tax return in India. Similar to a resident, you are eligible for claiming property taxes paid in India for this house. You can also claim 30% standard deduction on the total of rental income less property taxes paid. In case you’ve taken a home loan, you are also allowed to deduct the interest for the financial year.

Rental income as stated above is calculated as per income tax laws. And is the higher of (1) amount at which the property is reasonably expected to be let out or (2) actual rent received or receivable.

If you have a home loan, you are also eligible to claim the payments made towards principal repayment under Section 80C up to ₹1.5 lakh.

Tenants making rental payments to NRIs are required by law to deduct TDS at the time of payment. Therefore, your tenant will deduct TDS at 30% (31.2% including cess) on the payments made to you. In case your total income in India is not likely to be taxed at 30% because you are in a lower slab rate, you can approach an income tax officer to provide you a certificate for TDS deduction at a lower rate. You can then give your tenant this certificate so that he makes TDS deduction as per the certificate.

Such rental income may be taxable in the country of which you are a tax resident. You can, however, claim benefits as per DTAA (Double Taxation Avoidance Agreement) between the two countries, to make sure the same income is not doubly taxed.

Archit Gupta is founder and chief executive officer, ClearTax. Queries at mintmoney@livemint.com