For returning NRIs, income not accrued in India is free of tax

If your resident status is 'resident but nor ordinarily resident' you need not pay tax on money received for your work abroad. Even later, you can claim DTAA benefits on such incomes

I have been living in Sydney since 1991. I will retire next year in April and plan to return to India. However, my final retirement corpus and benefits will be processed by end of December 2018 or January 2019. How will this be taxed if I return to India immediately after retirement, considering I will be a resident when I get this money? If so, should I extend my arrival? What is more advisable?

—Vivek Roy

To understand how your income will be taxed, you will have to find out your residential status in such financial year and determine where this retirement corpus will be taxed. When you return to India in FY 2018-19, it appears your status will be resident but not ordinarily resident (RNOR) in India for such a financial year. As per the income-tax Act, for a person with RNOR status, , or which is not received or deemed to be received in India, is not taxable in India. If you receive this income in Australia and then withdraw and remit to India, it will not be taxed in India. In case your status is of resident in India at the time such an income is received, it would have already been subject to tax in Australia. You will then offer it to tax in your Indian income tax return. You may then claim the tax benefits as per Double Taxation Avoidance Agreement (DTAA) so that this income is not doubly taxed.

I have a house in India, that has been lying vacant for nearly 2 years. From December this year, it will be let out to rent. What would be the tax rules on the rental income? 

—Name withheld on request

Income from house property is calculated by first estimating the annual value of the property. You are allowed to deduct municipal taxes actually paid by you. Further, a standard deduction of 30% is allowed from the net value above. If any interest payments are being made towards a loan taken for construction or repairs to the house property, those can also be deducted as per allowed limits. The net amount arrived at is included in the income tax return of the taxpayer under the head income from house property. If you own more than one house property, the treatment may be different.

The annual value of a self-occupied or a vacant house property is nil. The annual value of a rented property is higher of expected rent of the property or actual rent received. 

Here the ‘expected rent’ of the property is the higher of (a) municipal valuation or (b) its fair rental value. 

Now let’s understand what happens when a property is let out for a few months and is vacant for a few months of the year. In this case, two scenarios may arise:

1. Rent received is more than the expected rent. In such a case, the rent received shall be the annual value.

2. Rent received is less than the expected rent. In this case, the annual value shall be the higher of actual rent and expected rent and a vacation allowance can be claimed. This vacation allowance shall be based on the expected rent. Say, it was vacant for 3 months and expected rent is Rs30,000 per month. The annual value shall be Rs2,70,000.

From the annual value so calculated, municipal taxes paid will be deducted. And the rest of the deductions mentioned above can be claimed.

Archit Gupta is founder and chief executive officer of ClearTax.

Queries and views at