One of the most acceptable ways to use your unoccupied property and earn money is to rent it out. The rental revenue generated by the residential immovable property must be deposited into the owner’s NRE or NRO account. Apartments for rent must have an NRI rental agreement between the non-resident and tenants. In order for a rental contract to be enforceable, the parties must register the agreement.
Here are a few useful tips for NRI Property Management and Rental Services in India:
Requirements for a NRI Rental Agreement
There are a number of requirements to consider before renting an flat, including tenant screening, taxation of rental income, lease clauses, etc. All the terms, including rent increases, security deposits, accountability, and variation of payments, should be specified in the rental agreement’s conditions. It is also important to check the tenant’s background. Landlords must use appropriate judgment and caution when negotiating rental agreements. Since NRIs cannot frequently visit the property, the individual to whom the landlord is renting the property must be reliable. An NRI can enter into a rental agreement in India in a number of ways such as making a power of attorney, or by making an online agreement.
Owner and Tenant PAN Numbers are mandatory to be mentioned in the Rent Agreement.
Standard terms in Bangalore gated society apartments include
- Deposit – Earlier (before covid) it used to be 8-10 months of rent for Gated societies apartments and even up to 12 months for Villa Communities. After covid – since 2022 – when offices have reopened and employees have come back – the deposits are in the range of 4-5 months depending on Tenant profile and if the flat is Fully Furnished or Semi-Furnished.
- Rent – Tenants and owners follow both systems of Advance Rent where rent for a given month is paid by the 5th of the same month or post Rent where rent for the month is paid by 5th of the next month. Ofcourse tenants prefer post-rent but Owners and most property management companies like ORO Proptech enter into advance rent contracts.
- Charges when Tenant vacates – this is an important clause and usually a point of negotiation. But most standard rent agreements and owners in Bangalore include a deduction of one month rent equivalent towards painting, cleaning and recovery of any damages attributable to tenant when they vacate.
- Owners have to be careful when they refund the deposit of the tenant. Besides the one month rent deduction, Owner needs to ensure all bills such as electricity, Apartment Maintenance, any missed rents, etc are deducted.
NRE or NRO account for NRIs
A bank account opened in India in the name of an NRI and used to deposit foreign earnings is known as an NRE account. In order to handle their money earned in India, NRIs in India maintain a savings or current account known as an NRO account. These incomes include rent, dividend, pension, interest, etc. The rental income generated by the immovable property is directly deposited into NRI’s NRE or NRO account. The proceeds can also be sent immediately overseas if NRI doesn’t have an NRE or NRO account, but he needs a certificate from a chartered accountant stating that all taxes have been paid on time. Depending on their country of residence, some NRIs may be required to pay taxes in both countries on their rental income. A double taxation avoidance agreement exists in the United States and India. Any money NRI earns in India must be placed in your Non-Resident Ordinary (NRO) account.
Tax on NRI Rental Income in India
As the rental income is earned in India, the tax will be payable by the NRI in India. The rent payer will deduct tax at the source. In this situation, the rent payer is required to obtain a TAN number and deduct 30% TDS from the rent payment. He must also give the NRI a TDS certificate. The payer is responsible for taxes. Therefore, the income tax authorities may hold the payer accountable if the payer fails to deduct tax and the NRI too fails to declare the income and pay the tax. It is wise to file your tax returns and pay the associated taxes if the renter does not deduct tax at the source.
Tax on rental income in the country of residence
As is the case with rent, the tax will be withheld at the source of income received in India. That income will, however, also be taxable in the nation where the NRI currently resides. In these situations, it is necessary to refer to the double taxation avoidance agreements that India has entered with a number of other nations. It is wise to review the tax regulations of the country in which the NRI resides.
NRI Income tax exemption
You are eligible for a TDS exemption if your total income in India, including rental income, is less than the basic exemption amount of Rs. 1.6 lakh. However, it might be a challenging process. In order to submit the certificate to the renter, NRI would need to apply to the tax authorities for a tax exemption certificate. An NRI who has taken out a home loan to purchase property in India is qualified to claim a tax deduction under section 80c of up to Rs. 1.50 lakh. This can be deducted from the overall income earned in India, which also includes rental income.
Deemed rental income
If an NRI owns more than one property, only one of them will be considered to be self-occupied. In relation to a self-occupied property, there is no income tax. Whether you rent out the other one or not, it will be deemed to be given on rent. If you haven’t rented out the second property, you’ll need to determine its deemed rental income and pay the related tax. The Income Tax Act does not specify whether one or both of these properties must be located only in India. If you are an NRI who only owns one property globally, and that property is in India, you will not be required to pay income tax on your “deemed rental income” in India.
Tax on deemed income from house property in a foreign country
The US tax code does not tax deemed income in the case of NRIs residing there. According to Ganga Mukkavilli, a CPA located in New York City whose company, CPAs, Taxes & Associates PC, specializes in international accounting, taxes, and small businesses, you would still need to list the property in your US tax return if it is an investment property. If NRI does not show this investment property, the problem will arise at the time of sale of the property.
Finding the ideal tenants, dealing with legal problems, and keeping up with the maintenance of a rental property outside of India are not simple tasks. There are many companies that provide property management services and ORO Proptech is one of them.
ORO Proptech is one of the most trusted property management & rental services companies in Bangalore. They help you in finding the right tenant and remotely managing your property along with services like getting your house ready, tenant verification, rent collection, house management, and provide data-driven insights. Visit the Oro Proptech website for NRI Property Management in India.