One of the major sources for inflow of funds in India has been the Indian diaspora located in different parts of the globe. In this context the investments made in immovable property and the real estate sectors, have proved to be a major attraction for the NRIs. Such investments, in addition to providing a rewarding experience for the NRIs, have also enabled them to be a catalyst for the growth of Indian economy. The income earned by the NRIs from such investments is generally in the form of rental charged by them from the people using the property either for commercial or residential purposes. The tax that the NRIs have to pay on this income contributes to the inflow of funds into the country through them. While this might seem to be an insignificant amount, when taken in perspective of single individuals, it can form a relatively big sum when the entire section of NRIs is taken into consideration. Housewise had Commenced operation in Pune & Bengaluru in 2015. Launched Hyderabad in 2016, Gurugram, Chennai and Noida in 2017, Mumbai in 2018, Delhi in 2019.
A Brief Overview Of Income From Property
As the term indicates, Income from Property is defined as the rent earned by an individual from any property owned by them, which is chargeable under the Indian tax laws. Contrary to the popular belief, NRIs owning property in India and earning an income from the same are liable to pay taxes as applicable to such income. The tax is applicable only to the gross total income from such properties only if they satisfy the below listed three essential conditions.
- The property is owned by the NRI being assessed for taxation
- The property comprises of house, buildings, or developed and undeveloped land.
- The property is used for any purpose, except being used by the owners for operating their own venture.
Important Things To Remember
In order to be able to calculate the annual income from properties for NRIs in a precise and accurate manner, it is important to keep the following important things in mind.
- When it comes to property ownership by NRIs, it can refer to freehold, leasehold rights as well as deemed ownership.
- The income earned from such properties is calculated in the same manner as for an Indian resident and includes both rented out and vacant properties.
- NRIs being charged a tax for income from property can claim a standard deduction of 30% besides deducting property taxes and also take benefit of an interest deduction in case of a home loan.
- The taxes are not applicable to properties that are inherited by the NRIs unless they decide to sell such property or rent it out to earn income.
Computing The Annual Income From Property For NRIs
Calculating the gross annual income earned by NRIs from their properties is essential for tax deduction purposes. However, the gross income is not generally the actual income earned by the employees every year from their properties. While calculating the gross income involves simply adding up total annual income earned from all the properties owned by the NRIs, calculating their actual income is a bit more complicated. The formula for calculating this income is detailed below.
Gross Annual Income = Sum of the annual rent received and the expected rent for all properties owned by NRIs
Net Annual Income = Gross Annual Income – Municipal or other local taxes paid on the property
- Deductions under section 24
- Statutory deduction at 30 percent of the Net Annual Income
- Interest paid on the home loan
Actual Annual Income = Net Annual Income – Other Deductions
Even after the various deductions as mentioned above, the actual annual income earned by NRIs can be considerably high. This, however, depends on the type and location of the property. That is why, property investment has become a popular choice for NRIs, seeking highly profitable investment options in India.