Taxation of rental income in India

[desh7]

I have a few questions on taxes on rental income in India.

If you are a US citizen and have rental income in India,

1. Do you need to get a PAN card? Any advantage/disadvantage of a PAN card? Can the rental property itself be the address proof?

2. I heard that the company leasing the property will deduct taxes at the resource. Are you still required to still file a tax form in India?

3. Are there tax deductions available ( property depreciation, home improvement etc)?

Thanks.

[VRG]

Please see my comments:

I have a few questions on taxes on rental income in India.

If you are a US citizen and have rental income in India,

1. Do you need to get a PAN card? Any advantage/disadvantage of a PAN card? Can the rental property itself be the address proof?
No, you need it only if your income is more than 1 lac to file taxes. It is always good to have PAN card. Let's say if the tax is deducted at source for any kind of income, then you can get the credit (if any due).
2. I heard that the company leasing the property will deduct taxes at the resource. Are you still required to still file a tax form in India?
Filing taxes has nothing to do with personal or company lease, it depends on the income.

3. Are there tax deductions available ( property depreciation, home improvement etc)?
Yes

Thanks.

[desh7]

Thanks for your response.

Are US Citizens eligible for applying for a PAN card?

[VRG]

Thanks for your response.

Are US Citizens eligible for applying for a PAN card?

Yes, very much.

[cyberabadi]

I have Rental Income in India and don't have a PAN # while my wife does have it. Although the property is registered on both of our names, the rental check is deposited in my Indian A/c.

1. Do I need to pay taxes on this income? Its a few Lakhs/Year.

2. What if I follow 'Don't Ask, Don't Tell' policy?

3. Is it better to get the check on my wife's name (she has PAN #)?

Pl. advice,

[RAJESH H DHRUVA]

Dear VRG and desh7,

1. Yes. Even if your income does not exceed INR 1,10,000 which is basic exemption limit for income tax, you will need a PAN (Permanent Account Number).
2. The PAN will have to be provided to the tenant for meeting his statutory obligation of tax deduction at source (TDS).
3. Irrespective of status the tenant being a company or an individual ,in case of a Non Resident owner tenant is required to deduct tax @ 30% plus Cess totalling to 33.99% .
4. US citizens of Indian origin can apply for PAN.

Dear Mera Nasib R2I,
1. A company incorporated and rental income aiming, as business income is disadvantageous from tax point of view.
2. Under the said alternative, deduction of 30% rental income towards notional expenses for maintainance will not be permissible.
3. Moreover a Company is liable for tax of app. 35% and further dividend distribution tax as and when the net profits are proposed to be distributed amongst share holders.
4. A US citizen of Indian origin can incorporate a company in India, which should have at least two shareholders.
5. Profits of such company , will not be taxed in the hands of the individual in India and or USA.

Dear Cyberabadi,
1. As the property is registered in joint names, being co-owners the rental cheque should be deposited in joint account.
2. If an NRI, you should not continue your Indian account.
.02 In such case, rent should be deposited in NRO Account and preferrably the cheque should be availed in joint names.
.03 However, this will depend on the parties who have entered in rent agreement as owners i.e. possibly you alone and your wife or both of you jointly.

Best wishes,
RAJESH H DHRUVA

[cyberabadi]

Dear Cyberabadi,
1. As the property is registered in joint names, being co-owners the rental cheque should be deposited in joint account.
2. If an NRI, you should not continue your Indian account.
.02 In such case, rent should be deposited in NRO Account and preferrably the cheque should be availed in joint names.
.03 However, this will depend on the parties who have entered in rent agreement as owners i.e. possibly you alone and your wife or both of you jointly.

Best wishes,
RAJESH H DHRUVA [/quote]

Rajesh,

Thanks for the info. Henceforth, I would have the checks deposited in a joint NRO account. Are there any tax issues that I need to be aware of. Do we need to pay any tax on this income. Please Advice.

The rental agreements have been signed by my parents as we had given Power-of-attorney to them to represent us for this property.

[nand]

Rajesh

Is it possible to say have my father draw up a rental agreement on his name for a house that I own? Or can I rent it to him for say 1 rupee and he in turn rents it out for say 10000. I would not have any claims on the rent at all. Once again this arrangement will be more to ensure the renter is managed and forced to pay the rent in time rather than to avoid taxes (in any case there is no tax benefit to this)

Thanks Dhruva.

Appreciate your response.

My intention in setting up a Real estate holding company was to make sure the rents get deposited to the account. Tenants and renters are more likely to pay rent to a company on time rather than an individual. Especially when the individual is outside India.

I need to assess the information you have provided on individual vs. business tax.[/quote]

[nand]

why should it be fishy??? am I not legally allowed to rent it to anyone for any price I like?? And can that person not legally be allowed to sublet for any price they like??? And if you genuinely have no claims to your fathers income and let him do what he wants with the rental money and pay taxes then where is the problem?

Apart from manageability, I am looking for a way at tax avoidance and NOT tax evasion. tax evasion is a crime, tax avoidance is not. I do not know enough to say whether this is legal or not. If it is not, well and good, let us not do it. If there is no law strictly preventing this, then why is this fishy? My purpose is to find out if this is legally possible. If it is, then there is a loophole we can exploit. Beating the taxman in his game without cheating or breaking the law is the intention.

and besides your idea of setting a real estate holding company may be to avoid showing rent on US tax return as well??

Ha! - smells fishy.:eek:[/quote]

[babu_babu]

why should it be fishy??? am I not legally allowed to rent it to anyone for any price I like?? And can that person not legally be allowed to sublet for any price they like??? And if you genuinely have no claims to your fathers income and let him do what he wants with the rental money and pay taxes then where is the problem?

Apart from manageability, I am looking for a way at tax avoidance and NOT tax evasion. tax evasion is a crime, tax avoidance is not. I do not know enough to say whether this is legal or not. If it is not, well and good, let us not do it. If there is no law strictly preventing this, then why is this fishy? My purpose is to find out if this is legally possible. If it is, then there is a loophole we can exploit. Beating the taxman in his game without cheating or breaking the law is the intention.

and besides your idea of setting a real estate holding company may be to avoid showing rent on US tax return as well??[/quote]

You can. The law can not stop you. But you will have to mention this one rupee in your Tax filing sheet. Based on the review, you may be asked to pay the tax on fair rental value, which you would have earned, if you had not shown favoritism to your father.

Go for re-investment of rental income OR lease pay back after 5 or more years.
So you will not have to pay the tax, when you receive the physical money at the the end of the lease term.