People are buying now-a-days second home for a purpose of wealth creation. The definition of a home is now extended to a class of asset that generated income in the form of ‘Rent’. Gone are the days, when the sole purpose of buying a home is to live within it. Now investors market in real estate is quite active and this could be witnessed from the growth of secondary market over last few years, in spite the realty segment witnessing stagnation.
In Metros, the rents of a property have been increased drastically over the period of time. So, why to miss an opportunity of making money through your idle property? With help of the following tips, you as an NRI can generate good income out of your vacant property in India:
Issues to be taken care of by an NRI at the time of acquiring or letting out a property on rent in India:
1. Type of rent agreement
2. Repatriation of Rental Income
3. Tax implications on rental income
1. Rental Agreement
‘Rental Lease Agreement and Leave and License agreement are the two types of rental agreement in India.
While the former is the temporary transfer of ownership to the lessee, the latter does not allow transfer of ownership.
Leave and License agreement is considered a better form of rent agreement.
2. Mode of Rental Amount
NRO or NRE account of NRI is used for the purpose where tenant can directly deposit the rent amount.
Alternatively, after obtaining the necessary certification from a chartered accountant stating that all the tax-related liabilities have been paid off, the amount of rent can be received by NRI directly into their external account.
3. Tax Implications
Any rental income for NRIs arising in India is liable for taxation. The tenant is held liable for deduction the tax on account of rent paid to a NRI. A tax @ of 30% from the original rent amount has to be deducted at source by the tenant and has to issue a TDS certificate for the amount of tax deposited. In case of failure, the tenant shall held liable for the non-payment of taxes.
The NRI must keep a check on Double Taxation Avoidance Agreement as well, as if he resides in a country which has such kind of agreement with India, then his income shall only be taxable in India and not in his country of residence. In the absence of this agreement, NRI may require to pay tax twice, one in India and other at his country of residence.
4. Deemed Rental Income
If an NRI owns more than one residential property in India then except one, all other properties shall be considered as let-out and the NRi shall held liable to pay tax on these deemed rental income. The mode of ownership includes inheritance, purchase or any other mode. Under all these cases, holding more than one residential property by NRI will make NRI liable to pay tax on account of deemed rent.
It is highly recommended to make a thorough research in all the above contexts before taking a final call.
