Being an NRI Deepika can rent out her Indian property and receive the rental income or rental yield in her NRE or NRO account which can be easily repatriated. The IT Act allows NRIs attractive rebates on rental income from house property resulting in tax rates being significantly lower on rental income as compared to normal income.
However, Deepika has bought the senior living facility in Ashiana Nirmay located in Bhiwadi. But in case someone would like to rent out the home, Ashiana has an in-house resale and rental division which helps the owners with the entire procedure.
Yield is the rental money received from tenants. It’s the rent a property provides over a year, expressed as a percentage of its purchase price. Rental income is considered ordinary or business income and not capital income.
A property owner can also rent out his/her house along with other assets like sofas, beds, kitchen appliances, air conditioners etc. Hence, the rent received by the owner will include the cost of assets which are being provided. Such rent is called composite rent.
1. Annual rental income-Annual expenses or loss of rental income x 100 Property Value
So, Deepika’s net rental yield from her ancestral property in Rajasthan will be calculated as follows:
120000-12000 x 100 = 6.2%
Expenses or loss of rental income mainly includes the following:
1. Purchase and transaction costs like property purchase price, legal fees, building inspections etc.
2. Annual costs such as vacancy costs (loss of rent and advertising)
3. Repairs and maintenance
4. Property management fees
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.
The benefit of buying a property with Ashiana is that they have an in-house team that helps owners with renting out the property and also takes care of the documentation for you.
But in case someone buys a property with another developer and want to rent out the property, below is the detailed procedure of drafting a rental agreement:
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.
Online websites like Legaldesk, Rent Mantra, Lawdepot, Paymatrix provide services for drafting rental agreements online.
Income Tax Implications
Since the income has been earned in India, tax will also be payable on the same. In fact, TDS is paid by the payer of the rent. The payer of the rent is required to obtain a TAN (Tax Deduction and Collection Account Number) and deduct TDS of 30% from the rent amount.
A TDS certificate is also provided to the NRI. The payer is held responsible in case tax isn’t paid on the rental income. NRIs need to refer to the DTAA to avoid taxation on rental income in India and country of residence. For instance, In the US rental income is taxed in the country in which the property is situated. So rental income is taxed in India and NRIs get credit for taxes paid in India while filing IT returns in the US.
The IT Act of India has a specific head of income titled ‘Income from house property, to tax rental income from a property. So, any rent received from property, whether its residential or commercial is taxable under this head. The property is taxable on the basis of its annual value which is determined on the basis of whichever is higher; market rent or received rent. Rental income is always taxable on an accrual basis and not on receipt basis.
In the latest Finance Act 2017 (effective from FY 2017-18), the Govt. has limited the amount of loss from House Property that can be set off against other incomes to INR 2 lacs. Balance loss can be carried forward for set off against income from house property in the subsequent 8 years.
The following deductions can be claimed from the net annual value of the property while calculating the total income under ‘Income from House Property:
Standard deduction of 30 % on the net annual value for repairs and maintenance
Interest on housing loan including interest for the pre-construction period (claimed in equal instalments over a period of 5 years from the year in which the property is acquired or constructed)
Municipal taxes payable for the property
If an NRI owns more than one house properties which are self- occupied, then one of the houses will be treated as ‘deemed to be let out’ and the annual value of the property will be the market rent. One can choose which house can be self occupied and which house is to be considered as deemed to be let out.