How to classify your ‘Properties in India’ for tax purpose

NRIs settled abroad may continue to own real estate properties in India as preferred investment option considering its ability to generate regular cash flows through rent. Rental income from a property situated in India is income earned in India. Irrespective of an individual’s residential status, income which is earned in India is taxable in India.

All types of properties are taxed under the head “Income from House Property’. “House property” includes residential houses, flats, shops, office space, godowns, factory sheds, other commercial spaces or some land attached to the building, say a parking lot. The Income-tax Act does not differentiate between a commercial and a residential property. This is the only head under the Income-tax Act which is charged on notional basis instead of real income.

The conditions to be satisfied for income to be taxable under this head are:

  • Person must be the owner of the house property
  • It should consist of a building or a land adjacent to one
  • Property must not be in use for business
  • Property must be rented out or in a position to derive rental income

Types of Properties for determining Income from House Property:

1. Let out Property - House Property which is rented for whole or part of the year

2. Self -Occupied Property - House Property used for residential purposes

3. Deemed Let Out Property – With effect from Financial Year 2018-19, two house properties can be claimed as Self Occupied and the rest will be treated as ‘Deemed Let Out Property’

NRI Owns Two Property Globally

If an NRI owns two properties globally and both properties are in India, the said property may be treated as self-occupied property.

Assume a scenario where an NRI owns One House in a Foreign Country and Two Houses in India - The rule of ‘more than two property’ will apply to global properties, not just to the properties situated in India. In other words, if an NRI owns a house in any other country and lives there, the one property in India may have to be treated as ‘Two Properties for self occupation’ and other house property should be declared as deemed let out property. 

Disclaimer: The views / the analysis contained therein do not constitute a legal opinion and is not intended to be an advice. Readers of this document are advised to seek their own professional advice before taking any course of action or decision, based on this document.

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