Mrs. Sharma is planning on giving the property in India on rent. She can rent out her property or apartment in India as an NRI and get rental income or rental yield in her NRE or NRO account, which she can simply repatriate. The IT Act (Income Tax Act) provides substantial rebates to NRIs on rental income from residential property, resulting in rental income tax rates that are significantly lower than normal income.

The rental money obtained from renters is referred to as yield. It’s the annual rent that the property pays, stated as a percentage of the purchase price. Rental revenue is not considered capital income, but rather ordinary or commercial income.

While giving the property in India on rent, an NRI property owner can rent out his or her home as well as other belongings such as sofas, mattresses, kitchen equipment, air conditioners, and so on. As a result, the cost of assets given will be included in the rent paid to the owner. Composite rent is the name for this type of rent.

Annual rental income = (Annual expenses or loss of rental income) x 100 ÷ Property Value

So, Mrs. Sharma’s net rental yield from giving the property in India on rent will be calculated as follows:

(120000-12000) x 100 ÷ 3500000 = 3.09%

The following are the most common expenses or losses in rental income:

1. Purchase and transaction charges, such as the cost of the property, legal fees, and building inspections.
2. Ongoing expenses, such as vacancy charges (loss of rent and advertising)
3. Maintenance and repairs
4. Fees for property management
5. Coverage

Related Blog: Should NRI Invest in India? Why Is Investment in India a Good Option For NRIs?

The income from house property is included in the gross total income of the assessee only in the following conditions:

1. The assessee is legally the owner of that property.
2. The property consists of houses, buildings and/or land.
3. The property is used for any purpose other than for professional purposes by owner himself.

Guide to Giving the Property in India on Rent

Below is the detailed procedure of drafting a rental agreement for giving the property in India on rent:

Procedure To Draft A Rental Agreement:

1. Draft the agreement.
2. Agreement is printed on Stamp paper of due value.
3. Agreement is signed by owner and tenant in the presence of two witnesses.
4. Register agreement at the Sub-Registrar office by paying the registration fees.
5. Documents required for a rental agreement are 2 passport size photos, Aadhar card and any ID proof with address.

Procedure to Draft a Rental Agreement Online:

1. Either tenant or owner can fill in the required details online.
2. The Rent agreement should be documented and duly signed by all parties in the presence of 2 witnesses.
3. The agreement document is then printed on the stamp paper of the requisite amount.
4. Online websites like Legaldesk, Rent Mantra, Lawdepot, Paymatrix provide services for drafting rental agreements online.

Types of Rental Agreements while Giving the Property in India on Rent

Primarily, there are two types of rental agreements such as

• Rental Lease Agreement: According to this, the existing rental laws control the rental amount and the tenants are allowed to sublet the property to a third party to the extent that the lease agreement and the rental legislation laws are covered. The lease agreement isn’t terminated if the owner of the property dies suddenly.
• Leave and License Agreement: There is no control over the rent as per the leave and license agreement and the tenants can’t sublet the residential property. If the owner of the property passes away, the agreement gets terminated automatically. Besides, the tenants should evict once the rental period gets over. The leave and license agreement favours the owner of the property and ensures his/her safety.

Income Tax Implications while Giving the Property in India on Rent

Because the income was obtained in India, it will be subject to taxation. TDS is, in fact, paid by the rent payer. The rent payer must obtain a TAN (Tax Deduction and Collection Account Number) and deduct 30% TDS from the rent amount.

The NRI is also given a TDS certificate. If the tax on the rental revenue is not paid, the payer is held liable. NRIs should consult the DTAA (Double Taxation Avoidance Agreement) to prevent double taxes on rental income in India and their home country. Rental income, for example, is taxed in the country where the property is located in the United States. As a result, rental income is taxed in India, and NRIs can claim a credit for taxes paid in India when filing their US tax returns.

The Double Taxation Avoidance Agreement or DTAA is a tax treaty signed between India and another country ( or any two/multiple countries) so that taxpayers can avoid paying double taxes on their income earned from the source country as well as the residence country.

The Revenue Tax Act of India features a section titled “Income from House Home” that taxes rental income from a property. As a result, all rent collected from a property, whether residential or commercial, is taxable. The property is taxed on the basis of its annual worth, which is calculated using the higher market rent or received rent. Rental income is taxed on an accrual basis rather than a receipt basis.

The government has reduced the amount of loss from house property that can be written off against other incomes to INR 2,00,000 under the current Finance Act 2017 (effective from FY 2017-18). The balance loss can be carried forward and offset against house property income over the next eight years.

Under ‘Income from House Property: Deductions,’ the following deductions can be claimed from the net annual value of the property when calculating the total income.

• Repairs and maintenance are deducted at a standard rate of 30% from the net annual value.
• Interest on a home loan includes interest accrued during the pre-construction phase (claimed in equal instalments over a period of 5 years from the year in which the property is acquired or constructed).
• The property’s municipal taxes are due.

If an NRI owns more than one self-occupied residence, one of the houses will be classified as “deemed to be let out,” with the annual worth of the property being the market rent. One can choose which houses are to be considered self-occupied and which houses are to be considered to be rented out.