NRI Rental Income in India: Tax Obligations and Calculation Requirements

Tax Liability and ITR Filing for NRIs with Rental Income in India

The tax liability and ITR filing requirements for Non-Resident Indians (NRIs) who earn rental income from property in India depend on whether their taxable income crosses the basic exemption limit. In this article, we will decode how rental income is calculated, when filing becomes necessary, and whether PAN-Aadhaar linking applies.

My son and his wife, who are settled in the USA, are joint owners of a property in India. They receive Rs 57,000 in rent and Rs 8,000 in maintenance from their tenant, totaling Rs 65,000, which is equally received by cheque in their account. Are they liable to file ITR in India? Do they need to link their PAN and Aadhaar? What is their tax liability on monthly rental income of Rs 32,500?

According to tax experts, maintenance charges paid by the tenant are considered as rent, even if paid separately. The rent is required to be shared in the ratio of ownership in the property. Assuming that both have equally contributed towards the cost of the joint property, as the rent is being shared equally, the monthly income of Rs 32,500 results in an annual rent of Rs 3.90 lakhs. After a standard deduction of 30 percent from the annual rent, the taxable rent comes to Rs 2.73 lakhs for each one of them.

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The basic exemption limit for a non-resident individual under the old tax regime is Rs 2.50 lakhs, irrespective of age, but it is Rs 4 lakhs under the new tax regime.

Generally, an individual is required to file his Income Tax Return (ITR) in India if his total taxable income exceeds the basic exemption limit. There are other criteria also mandating filing of ITR, but they are not relevant here.

The requirement to file ITR based on the threshold of basic exemption limit is applicable whether you are a resident or a non-resident. As the taxable income of your son and daughter-in-law does not exceed the threshold of basic exemption limit under the new tax regime, they are neither required to pay any tax in India nor are required to file their ITR in India.

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However, as they are non-residents for tax purposes, the tenant would have deducted tax at source from the rent paid. They will have to file their ITR if they wish to claim a refund of the tax deducted at source.

As non-residents, they are not eligible to apply for Aadhaar, and therefore, they are not required to link their PAN and Aadhaar. It is essential that their residential status under their profile on the income tax website is correctly stated as non-resident.