Recently, one of our readers posted a query whether he should let out his house on rent to a non-resident Indian (NRI) and what documents he should ask for, as well as the process he should follow.
“I have got an offer from an NRI who is looking to rent out my house for a few months. The offer is too good to leave but I am clueless as to what process I should follow and whether I should do it or not. Any help will be appreciated,” he asked in his query.
The Process Which Must Be Followed
According to Archit Gupta of Clear (formerly Cleartax), a tax filing assistance company, any individual who receives rental from an NRI person in lieu of such let out property, must disclose the same in his/her income tax return under the head ‘Income from house property’, and accordingly pay tax as per the applicable income tax rates.
NRIs are also liable to also deduct tax at source (TDS) from any rent payment made, under Section 194-I or Section 194IB of the Income-tax Act, 1961, as per applicable situation, he says.
Gupta further explained the difference between sections 194-I and 194IB. He says that where an NRI is paying an aggregate rent of more than Rs 2.40 lakh and is liable for tax audit, he/she must deduct TDS on the rent paid under Section 194-I. Those who are not liable for tax audit should deduct tax under Section 194IB, if the monthly rent exceeds Rs 50,000.
Further, the landlord can claim this TDS – which the NRI tenant will deduct from the rent paid – as credit for tax deducted and have the same adjusted from his/her total income tax liability.
Also, according to Section 197 of the Income-tax Act, 1961, the income tax assessing officer has to be satisfied that the total income of the recipient of such income justifies the deduction of income tax at any lower rate, or no deduction of income tax, as per the respective case.
So, if as a landlord you fall below the exemption limit and you think that you should be charged less TDS, then you should file an application to the income tax department addressing the assessing officer, and present your case with bank statements, income statements and other necessary proofs.
Who Is Considered An NRI Under The Income Tax Act?
Section 6 of the Income-tax Act, 1961, determines the residential status of a person for tax purposes. An individual who is of Indian origin or a citizen of India but not a resident of India is known as NRI.
Under the tax laws, a resident is someone who fulfils any of the below laid down conditions:
If a person has resided in India for a minimum period of 182 days during the previous year.
If a person has resided in India for a minimum period of 60 days during the previous year and a minimum of 365 days during the four immediately preceding previous years.
A non-resident is one who is a citizen of India or a person of Indian origin, and is not a resident as defined by the income tax laws.
Additional inputs from Neelanjit Das