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What tax rules are applicable to NRIs for rental income received in India?

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I have a house in Mumbai, that has been lying vacant for nearly five years. I plan to rent it out soon. What are the tax rules applicable to non-resident Indians (NRIs) for rental income received in India?

Name withheld on request

Rental income from the property situated in India is taxable in the hands of the owner of the house property. The method of computing taxable rental income is prescribed under the income-tax law as follows:

Gross Annual Value less municipal taxes gives the net annual value (NAV). Reduce a standard deduction of 30% of NAV and interest on housing loan from this, which will then be the taxable rental income.

Gross Annual Value is higher of the following:

Amount at which the property might reasonably be expected to be let out; or

Actual rent received or receivable.

In other words, Gross Annual Value compares the actual rent received or receivable with the expected rent that the property would fetch.

If there is loss under the head Income from house property from let out property due to interest expenditure on housing loan being higher than NAV less 30% standard deduction, such loss can be set off against income under other heads of income only to the extent of 200,000 and balance can be carried toward up to eight years for set off against future Income from House Property.

Also, any repayment of principal amount against a housing loan taken from eligible lenders for acquisition of such property is also eligible for deduction under Section 80C (maximum deduction under this section is 150,000). But this deduction is not available if the individual opts for the benefit of a lower tax rate under the new tax regime under Section 115BAC.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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