Nri - tds and tax calc on rental income if jointly own prope

Tax queries 408 views 6 replies

NRI2INVEST

7 Points Joined January 2018

Hello Experts, Appreciate your time and help. Kindly clarify below questions.

My wife and I are NRIs living in USA. I'm planning to buy a office space property in India that yields a rent of 10 lakh/annum. Wife has no income. I want to jointly own the property with my wife to claim tax benefits on her name as well.

I understand that for NRIs there is 30.9% TDS for rental income and Form 13 can be submitted to lower the TDS deduction.

To calculate the taxable income I also understand that there are few deductions applicable for NRIs.

My question is:

1. Because both of us will own the property, Should the 10Lac income be split into 5L each and then calculate the deductions and taxable income individually?

2. Once taxable income is derived from step #1 above, should we individually apply the tax rate as per tax slab (i.e. 2.5L of that income will again be tax exempted etc).

3. In the lease agreement to the tenant, should we mention anything specific that the rent be deposited to both of our individual accounts? or can the rent be deposited just to my account?

4. Should we own the property in equal % for my wife to be able to claim equal tax benefit as I do?

Replies (6)

Rishi Mehta

Ur friend

1533 Points Joined June 2017

1. Section 26 provides that the where house property is co-owned by the two or more person, then, each co-owner will be assessed separately for their share in the rental income.

Provided the share of each co-owner is definite and ascertainable in the property.

2. Yes, tax rate will be applied separately.
3. It would be better to specify terms and condition in the lease agreement. As it would help in clarifying TDS matters.
4. You can own the property in equal share and it would help in applying section.26.

NRI2INVEST

7 Points Joined January 2018

Thanks for your response Rishi Mehta. I've a followup questions. Kindly help.

For your response to #1 - (Assuming we hold equal share) since each co-owner is assessed separately, are the deductions calculated like this? eg: ( Gross rental income of coowner - (property tax)/2 - 30% of Net value of co-owner). Is this correct understanding?
For #3, should the tenant split the rent and deposit to both of our accounts? ( Can my wife and I have a joint NRO account so that tenant can deposit full rent into the joint account? Or should we have separate NRO accounts?).
Since my wife doesn't have any income, when we make the purchase I'll just pay and make sure she is listed as a co-owner with 50% share. Does she need to show any income source for this? If yes, is there anything I can do about it?

Rishi Mehta

Ur friend

1533 Points Joined June 2017

1# Income from house will be calculated as if the house is owned by single person and thereafter, income so computed will be distributed in the proportion of share in the house between co-owner. Share of each co-owner in income so computed will be added in computing thir total Income.
for example
Rental income. 100
less: municipality tax 10
Net annual value 90
less:standard deduction 27
income from house. 63
If ownership is 50:50, then income of each co-owner will be Rs. 31.50.

Rishi Mehta

Ur friend

1533 Points Joined June 2017

3# it would more better to deposit respective share of rent in each co-owner separate Bank account to avoid future tax related litigation. For having joint NRO account: Bank in which you have Account will guide you more better than me.

Rishi Mehta

Ur friend

1533 Points Joined June 2017

Regarding Source of income of wife for making investment: Please contact your Tax consultant.

NRI2INVEST

7 Points Joined January 2018

Wonderful Rishi. Thanks a lot for your time in answering all questions and helping promptly.

Last question. This is regarding Form13 - I did some math based on what deductions should be done and I applied tax slab rates separately for my wife and I. Income tax came around to 4% roughly for the rental income I took in my example.

Because rental income attracts TDS (30.9% for NRIs), I'll be submitting Form 13 to reduce TDS to around 4%. I didn't have any income in India in the past 3 years and so I didn't file ITR in India. Form 13 is asking for these last 3 yr details. Because I didn't file ITR in last 3 years, would this impact the tax officier's decision in issuing a lower TDS certificate?