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Rental Income From India
Is Rental Income From India Taxable for NRIs?

Is Rental Income From India Taxable for NRIs?

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Millions of Indians live abroad. And many out of them have hereditary home in India. Since it belongs to their ancestors, they don’t like to sell them. But sparing those accommodations vacant can invite eyeballs of the land-mafias who are defaulters. They confiscate property without any prior notice to the owner. This is why renting it out is the only option left to avert this problem. And also, they credit an additional benefit of rental income through it.

What is rental income?

The property can be any piece of land (non-agricultural land), house, office, building, hall, shop or any auditorium. The vacant land can have any attached building, like gym, garage, garden, car-parking area or playground. These kinds of property can be leased out in return of the income.

The revenue generated through renting can have different typefaces of the property.  The computation tax varies according to different typefaces of the property. It’s not essential that the property generates income. If it seems to have potential to generate income, then that property is termed as the source of rental income. Thereby, tax is computed accordingly.

Now, let’s move ahead to determine which factors decide taxability of the property.

Factors determining taxability of property income

Every country has its unique rules and policies for levying tax. We will look here the tax-determinants of the property particularly in India. Typically, the property-tax is levied on the basis of its location. If it belongs to India, the tax will be executed in India, not in any other country. The advisory of any magistrate dealing in NRI services in the best way can prove handy. The residential status of the property owner will decide the ratio of tax.

In the nutshell, the factors that decide the tax on property are:

  • Source of income
  • Residential status

Before moving on to the calculating this kind of tax, let’s understand the related terminology below.

Terminology related to house property tax:

  • Annual value: It identifies how much potential has the property to generate revenue annually.
  • Municipal value: Since this tax is levied by the municipal corporation of the region, the competent authority computes tax on the basis of its host of factors.
  • Fair rental value: This value is evaluated on the basis of the identical property’s rental income. It implies the same kind of property is found and then, its tax is identified to decide the tax value.
  • Standard rent: The Rent Control Act was drafted to fix the standard value of tax. If that value exceeds for evicting tenant, the execution is considered as the violation of the aforementioned act.  
  • Actual rent receivable/ received: It is the actual rent amount received by the owner from the tenant. The payee of utility bills, like electricity and water bills, is also considered while evaluating it.
  • Gross annual value: Whichever is the highest among rent received or receivable, fair market value and municipal value of the property, is termed as gross annual value.  

If the Rent Control Act is applicable, then the computation of gross annual value will depend on the highest value between the Standard Rent and Rent Received.

  • Net Annual Value: Municipal tax paid calculates Gross Annual Value.
  • Deductions: The actual taxable rent is calculated under Section 24 of the Income Tax Act. It involves two types of deductions. First is Statutory and the second is Interest on Borrowed Capital.
  • Statutory deductions: It will be applicable only when the annual value is there. 30% of Net Annual Value is calculated. Repair charges, rent collected or any other expenses of the property will be deducted from the output.    
  • Interest on borrowed capital: It is evaluated on the basis of the money debited to buy /construct the house. If the amount exceeds INR 1,50,000, the actual interest amount will be deducted when the loan is taken for 3 years. If the loan is taken for lesser duration, the actual interest and INR 30,000 will be compared. Whichever is lesser, that amount will be deducted.  
  • Annual value: Net Annual Value deductions compute annual value.
  • Owner/ deemed owner: The individual who is getting benefits through rental income can be its owner (on whose name is the property) or the deemed owner (who receives rental income but is not the registered owner).  

How to calculate taxable income from property?

The final evaluation of taxable rental income is done only after these deductions:

  • Municipal value
  • Standard deduction @ 30%
  • Interest paid on loan taken for construction, repair, acquisition or renewal of property
  • Interest paid before completion of the entire construction
  • Any repayment of principal amount that is paid against the loan taken under Section 80C.

It’s noteworthy if the total taxable income does not surpass the maximum amount, i.e. INR 25 Lakh, the non-resident needs not file income tax return in India.

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Is Agricultural Income from Abroad is Taxable in India?

Is Agricultural Income from Abroad is Taxable in India?

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India is an agro-based country since approximately 70% of its population earns bread and butter through farming. But farming is not the only composition of agricultural income. There are many associated works that generate income, like renting out the agro-land. This facility is available for the natives of India. But an NRI can’t invest in the purchase of agriculture land or farm house in India.

Let’s catch on details about the agricultural income sourced from India and abroad.

What is agricultural income in India? 

The revenue generated through farming or agricultural land, buildings or commercial produce from such land is considered as the agricultural income in India. Its details are mentioned in Section 2(1A) of the Income Tax Act.  Ownership, here, does not matter. Suppose a non-resident takes farming land on lease for earning through farming, it would be considered as income from agriculture.

If the revenue is by any means connected with agro-land, it would be counted as the revenue from cultivation. This revenue can be generated through sale of the processed crop. The sale of timber drawn from the trees of such land will also be a part of this income.

There is another situation when the same land or building, like storeroom, outhouse or residential place on/around it is rented out. That rent will be a source of agriculture income.

Taxability of agricultural income from India:

A clause under Section 10(1) of Income Tax Act declares that the income from cultivation shall be exempted from tax. It means that the central government can’t levy any tax on such kind of income.

Please underline that state government can levy tax on the same. But this possibility will arise when the income would exceed INR 5,000 in a financial year. The form ITR 1 or ITR 2 should be filled for income tax return. Conversely, the lesser money earned than the said income shall be exempted from the tax.

Taxability of agricultural income from abroad in India:

Although agricultural income is free from the payable tax under prescribed conditions, but if the same is sourced through the foreign agricultural land, the revenue would be ‘taxable in India’. On consulting this matter with any trustworthy outsourcer who deals in NRI services, the concept of tax will be clearer. This condition will be underlined as the ‘Income from Profits and Gains of Business or Profession’ or ‘Income from Other Sources’.     

How to calculate income tax over the foreign agricultural income?    

Be it the revenue from house property, business, salary or any other source, such income will be taxable. For the NRIs, the revenue generated from the cultivation abroad will fall under the head ‘Income from Other Sources’. Therefore, it would be taxable. The NRIs can consult any reliable entity deals in NRI investment services to dispel confusion over it.

Let’s check how tax is calculated in such condition.

  • When the income is derived from the agriculture land: Take an example. An NRI invested in farming in Canada and earns INR 200,000. Alongside, he is a salaried employee whose monthly income is, let’s say, INR 1 lakh. He generates revenue from dual sources. His salary will be known as base income whereas the former income will be agricultural income.

Now, the tax shall be computed by adding base salary with the agricultural revenue. Then, the output will be multiplied by the fixed tax, let’s say 20%, as per slab. The computation will be like this: 20% (INR 100,000 + INR 200,000) = 20%X INR 300,000 = INR 60,000.

  • When the tax slab changes: The tax slab undergoes revision every financial year. Therefore, it impacts the computation of tax. To cope up that amendment, the computation would be like this: Tax (Basic Tax Slab + Agriculture Income).
  • How much tax is payable?

When the foretold cases are computed carefully, the final computation of tax is to be done. It should be like this: T (Base Income + Agriculture Income) – T (Basic Tax Slab + Agriculture Income).

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PAN Card Not Mandatory to Pay Tax by NRIs, OCIs & PIOs

PAN Card Not Mandatory to Pay Tax by NRIs, OCIs & PIOs

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NRIs, PIOs and OCIs are battling to swap junked currency after demonetization. Now, Reserve Bank of India (RBI) has given a new lease to them. The date to swap outdated currency has been extended upto 30th June, 2017. By showing their valid identity & source proofs along with the letter/form of authority, they can easily exchange the defunct notes at any branch of RBI.

Amid such stringent campaigning against black money, the possibility of fraud has also become prominent. Particularly with the PAN card, it’s a walkover to extract someone’s banking details. Let’s comprehend when NRIs or other emigrants from India require this card first.

When does an NRI, PIO or OCI require PAN card?

PAN card is recommended for tax payers. Banking bodies also ask for it while opening an account, applying for credit card, investing money in Indian stock exchange and spending cash on stocks worth or more INR 50,000.

However, it’s a licence that allows tax payment but it’s not at all mandatory. Check below the guidelines under which the emigrants’ income is counted as taxable:

  • The income, like rental income, salary, income from the sale of securities (Mutual funds) or assets (property) owned in India originating from India and hence, is received from India is taxable for emigrants.
  • Income earned abroad but received in India is taxable.

PAN card is not mandatory for tax payment in India:

Many emigrants, who can’t be physically present to exchange, can authorize any known one for doing so in India. Here arises the possibility of default. Yes, it’s the hacking of personal information! Out of all proofs, PAN card is what can be its source. I want to inform here clearly that this card is not essentially required.

Since the Indian government has provided Form 60 as an alternative of PAN card, the tax payers can enclose the same while filing for tax or tax returns.

Where do NRIs get Form 60- An alternative to PAN card?

Many outsourcers, like S2NRI, are available 24X7 to outsource this facility. The applicant can contact them for consultancy regarding the same instead of applying for PAN card. They happily offer their advice for:

  • Where they can discover the form in person.
  • Spotting the official online place of Indian government (the website of Income Tax Department) where it is available.

NRIs should avoid PAN card as an identity proof for demonetization-Why?

However, this card is essential for hassle free tax payment. But, as said above, it is not compulsory.  And don’t flow with the crowd or fall prey to the rumours that showcases this card is mandatory. There are some official online businesses that do charge for the issuance of this card. But they are not official government website.

This card can let the hacker access sensitive personal information. If so happens, the authentic card holder can be plundered. In order to stay away from such hacking or stealing, go to the shelter of the form 60. It’s the best & secure alternative.

 

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