How can NRIs receive rental income on Indian property?

by Manshu on October 16, 2012

in NRI

A few days ago Raj left the following comment:

Raj October 1, 2012 at 8:10 pm [edit]

Hi Manshu,
Came across your website while trying to do some research and I was wondering if I could trouble you for some advice
I currently live in the UK and the father lives in India and looks after some familial property in India.
He has now come to an age that he will need to be looked after and he’s planning to come and live with me.

I was looking to open a bank account which me and my brother (who lives in the US) can manage it online from abroad and primarily deal with funds coming from tenants and also if necessary transfer some money from the UK or from the US if any property maintenance is needed.

It’s all Kosher and needs to be quite straightforward for both of us to use.

Is there such facilities available in India and if so would you be kind enough to point me in the right direction.
Most banks seems to be interested in opening savings accounts but have been unable to find this information

Many thanks in advance

Raj

I think I’ve seen the question about how NRIs should deal with rental incomes earlier as well, and I imagine this must be a fairly common scenario with so many Indians living abroad and owning property in India.

However, as Raj says, most bank staff don’t seem very knowledgeable about this and the few people I asked gave me some conflicting answers as well.

I’m going to share what I found anyway and as usual, comments will help point out any inaccuracy and help further the discussion.

You can receive rental income in NRE and NRO current accounts

The link on NRE and NRO accounts on the FEMA website state that you can receive rental income on current accounts of both types and then repatriate this money as long as you comply with the other rules governing the account.

Here is the relevant text about the NRE account:

Credit of current income like rent, interest, pension, dividend etc. after deduction of tax (IDS) and obtaining CA certificate that the funds are eligible for remittance and applicable tax has been paid/provided for. – RBI circular No. 5 dated 15-7-2002.

This means you can receive rental income as long as tax has been deducted on it and you have obtained a CA certificate stating that tax has been deducted on it.

Here is the relevant text about the NRO account:

NRIs can repatriate their current incomes like rent, dividend, interest, pensions etc. by debit to their NRO Account. They should produce a certificate of Chartered Accountant that the amount is eligible for remittance and applicable taxes have been paid/provided for

This again states that you can repatriate the funds as long as you produce proof in the form of a CA certificate that shows that you have already paid tax on this income.

Shiv found a very useful ET article on this which asks for clarity in repatriation rules and covers a lot more ground than I’ve done in this post.

Finally, I would think that if you were in this situation, you should avail the services of a CA before opening the account so that the CA can acquaint you with the nuances of this transaction, and you would anyway need the CA to get a tax certificate later on so might as well hire one earlier in the process and ask any questions you may have.

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{ 13 comments… read them below or add one }

Sriraksha Financial Planning Services October 16, 2012 at 10:02 am

Can income earned in India like rental income be deposited in NRE a/c? I thought NRE accounts have a restriction that the source of funds of all deposits made in to the account have to be from abroad and a taxable NRO a/c needs to be opened for this purpose.

Reply

Manshu October 16, 2012 at 5:27 pm

From the language in the FEMA website and the ET article, it appears that you can use NRE accounts for that as long as you show that the tax has been paid on that.

Reply

Veer October 16, 2012 at 10:24 am

I was wondering the same thing.

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RAJA October 16, 2012 at 12:23 pm

Dear Mr. Manshu

Thanks again bringing this issue on board. From your message i am of the view that rents ( NRIs who are getting rental income in india) can be placed in NRO account. Please confirm whether any TDS ( deduction 10 % to 30%) should be made by tenant and pay the same to IT office. There are mixed opinions (nothing seen in black & white) about this and may i request your clarifications / clarity in this regard for the sake of NRIs.

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Manshu October 16, 2012 at 5:27 pm

I’m also not sure about the laws but it seems to me that there is TDS involved on this taxable income at the rate applicable to the assessee. However, I’m not sure how this rate is calculated. I’m sorry that I can’t really give you a definite answer on this.

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Shirish October 23, 2012 at 7:57 am

TDS is not required to be deducted by the tenant. You need to declare this amount as Indian income and pay tax on it as per Income tax rules. After paying taxes, you can repatriate the funds from NRO account with proper documentation subject to the limit of 1 million USD per financial year.
I will write separately on the procedure to repatriate funds from NRO account.

Reply

RAJA October 23, 2012 at 3:24 pm

Thank you Mr. Shirish for your clarification regarding TDS deduction by tenant as it was bothering me since last one year.

Reply

Shirish October 23, 2012 at 8:13 am

Here are the full details on how to repatriate funds from NRO account to either NRE account or abroad:
The revised procedure for furnishing information regarding transfer of funds from NRO to NRE is as follows:
(i) The person making the payment will obtain a certificate from a chartered accountant in Form 15CB.
(ii) The remitter will then access the website to electronically upload the remittance details to the Department in Form 15CA (undertaking). The information to be furnished in Form 15CA is to be filled using the information contained in Form 15CB (certificate).
(iii) The remitter will then take a print out of this filled up Form 15CA (which will bear an acknowledgement number generated by the system) and sign it. Form 15CA (undertaking) can be signed by the person authorised to sign the return of income of the remitter or a person so authorised by him in writing.
(iv) The duly signed Form 15CA (undertaking) and Form 15CB (certificate), will be submitted in duplicate to the Reserve Bank of India / authorized dealer (which is your bank). The Reserve Bank of India / authorized dealer will in turn forward a copy the certificate and undertaking to the Assessing Officer concerned.
Please visit website of income tax department (www.incometaxindia.gov.in) for the procedures, formats and standards for running of the scheme as well as instructions for filling up Forms 15CA and 15CB. These forms shall be available for upload and printout at http://www.tin-nsdl.com.

Also see following website on how to fill form 15CA
http://www.charteredclub.com/form-15ca/

I am a NRI and have done this before thru’ SBI, NRI Branch in Mumbai. This procedure is also useful to those NRIs, who have earlier invested HUGE AMOUNTS in NRO FDs when there was big difference in NRO and NRE fixed deposit rates. Now the interest rate is same for NRO and NRE FDs. Interest on NRO FDs is taxable whereas interest on NRE FDs is tax free for NRIs. Therefore, instead of paying tax on interest earned on NRO FDs, NRIs can break (premature withdrawal) the NRO FDs and transfer the money to NRE account and open new NRE FD of the same amount. However, you have to see if this is benefical considering penalty for premature withdrawal of NRO FD and the current interest rates on NRE FD.

Regards,
Shirish

Reply

Shirish October 23, 2012 at 8:27 am

This is continuation of my earlier message explaining the procedure for repatriating funds from NRO account either to NRE account or to repatriate abroad.
You need to know the BSR (Basic Statistical Return) code of the bank where you are doing the transaction. This code is required for filling up forms 15CA and 15CB. Just google search and you can find the BSR code of your bank.

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Efiling Of Income Tax October 23, 2012 at 2:31 pm

The rent received by NRIs for property in India is eligible for repatriation and is subject only to payment of taxes. The rent amount is normally credited to the NRO account of the NRI. He needs to submit an undertaking and certificate from a Chartered Accountant stating that the income tax has been paid / deducted and he can repatriate this income. In case the non resident does not have taxable income in India, he can submit a simple declaration that he is not a tax payer in India.

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Raja November 16, 2012 at 12:16 pm

If a NRI giving his house for rental. he has to first put a tenancy contract for 11 months. if you give your house with out contract than you cannot get it back. than you have walk to court & police station. you cannot get rental from the tenant. each & every time has to renew the tenancy contact for 11 month only.

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Manish January 7, 2013 at 4:07 pm

Considering all these hassales in purchasing property as a NRI. Is it not better to invest in your mother’s name? But how it works when you want to sell the property and want to bring proceeds of the sale back to your overseas country.

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Manshu January 8, 2013 at 12:05 am

I’m not sure about this, theoretically, you can move money out of India to the tune of $250,000 in a year I believe, but then I’m not sure what are the practical aspects of this.

Reply

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