How is a house leased out to an NRI in India taxed?

– Name withheld on request

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

The Gross Annual Value (GAV) minus the municipal taxes actually paid gives the Net Annual Value (NAV). Deduct standard deduction of 30% of NAV and from this interest on housing loan, which will then be taxable rental income.

The GAV exceeds the amount the property can be expected to rent out; or actual rent received or receivable.

In other words, GAV compares the actual rent received or receivable with the expected rent from the property.

If interest expense on housing loan exceeds the standard deduction of 30% less NAV, there is loss under income from house property from let out property, then such loss is to be set off against income under other heads of income. can be adjusted only to the extent against 200,000 and the balance can be carried forward for 8 years for set-off against future income from the house.

Further, any repayment of principal amount against housing loan taken from eligible lenders for acquisition of such property is also eligible for deduction under section 80C (maximum deduction is 150,000). But this deduction is not available if the individual opts for the benefit of lower tax rate under the new tax regime under section 115BAC. Further, any loss under income from house property will not be allowed to be set-off against any other income and carried forward under the new tax regime.

As a non-resident under India IT Laws, you can file your ITR under ITR-2 (if you have no business income) or ITR-3 (if you have business income). This may change after the Composite Tax Return Form is notified.

Sonu Iyer is the Tax Partner and People Advisory Services Leader at EY India.