Rental income in India is taxable in India regardless of NRI status

Rental income from property in India is considered as income accrued in India and is taxable


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I earn taxable income in the US, and get Rs72,000 a year from rental income in India, and I am a non-resident Indian (NRI). What is my tax liability in India?

—U.R.K. Rao

Taxability in India depends on source of income and residential status. Typically, source of income lies where the services are performed, or where the asset, from which the income arises, is located. Income earned and received in the US will not be taxed in India if you qualify as an NRI.

Rental income from property in India is considered as income accrued in India and taxable in India irrespective of residential status. The taxable value of rental income will be calculated after considering various deductions such as:

—Municipal taxes paid to the local authority;

—Standard deduction at 30% of the taxable value;

—Interest paid on a loan taken for construction, repairs, acquisition, or renewal of the property;

—Pre-construction period interest deduction (available as deduction in 5 instalments from year subsequent to construction completion year).

Additionally, any repayment of principal amount against housing loan taken for such property is also eligible for deduction under section 80C (maximum deduction of Rs1,50,000). However, if your total taxable income in India (including rental income and/or any other source of income) does not exceed the maximum amount not chargeable to tax (Rs2,50,000), you are not required to file income-tax return in India. Depending on your residential status in the US, the rental income in India may also be taxable in the US. In such case, applicable credit may be claimed in the US for taxes paid in India under the Double Taxation Avoidance Agreement between India and the US.

My brother lives in Australia. He transferred some money through NEFT in my saving bank account. Please confirm if this income is exempt from tax or not? What will be our tax liability?

—Anuj

Transfer of money from your brother to your account without any consideration will amount to a gift in your hands. There is no gift tax in India. However, income tax is payable on any sum of money, movable property or immovable property, received by an individual without consideration, except gifts received from a relative. Under the income-tax law, the term ‘relative’ includes: i. spouse, ii. brother or sister, iii. brother or sister of the spouse, iv. brother or sister of either of the parents, v. any lineal ascendant or descendant, vi. any lineal ascendant or descendant of the spouse, vii. spouse of the person referred to in clauses (ii) to (vi) above.

Therefore, a gift of money from your brother will not be subject to tax in India.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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