For an individual returning to India with rental income in the USA, understanding the taxation of foreign income in India is essential. Upon returning to Indian and after attaining resident and ordinarily resident status, your global income becomes taxable in India, including your USA rental income.
Yes, after being an ROR, if you are still earning income from the USA, the Indian taxation also applies to it.
In this blog, we will discuss how your US rental income is taxed in India, how you must disclose it while filing your ITR, how to claim FTC, which is a foregin tax credit, on it under the DTAA between India and the USA, and more.
We will break the topic into smaller sections to help you better understand the concept.
What happens to my Rental Income from the USA after I return to India?
As an NRI returning to India who qualified as a Resident and Resident (ROR), your global income becomes taxable in India, including income from foreign sources such as your rental properties in the United States.
As a returning individual with ROR status, if you are filing an income tax return in India, you must disclose all your foreign assets and income using Schedule FA and FSI.
Is Rental Income from properties in the USA Taxable In India as an ROR?
Yes, as an individual with ROR residential status, rental income from a property in the USA is entirely taxable in India under the head Income from House Property (Sections 22-27 of the Income Tax Act).
Income Disclosure while Filing Income Tax Return
As an ROR, if you have foreign rental income, you are required to complete the following schedules and forms in your ITR.
- If you want to disclose foreign rental income, use ITR Schedule FSI.
- If you want to disclose USA property details, use ITR Schedule FA.
- If you want to claim the Foegin tax Credit, Form 67 must be filed.
Tax Treatment In the USA For Returning NRIs
If you are categorised as a Non-resident Alien (NRA) in the United States taxation law:
Default Taxation:
- 30% flat tax on the gross rental income. There are no deductions or tit whatsoever.
- It is deducted by the US property manager or via self-filing 1040-NR.
A Better Alternative To 30% Default Taxation
India-US DTAA - Double Taxation Relief
India and the United States signed the double taxation avoidance agreements. Hence, you can claim benefits under DTAA.
The benefits under DTAA:
Avoid being taxed on the same rental income.
Under DTAA, you can easily claim credit in India for the tax you have already paid in the United States.
File Form 67 before or with your income tax return to avail the Foreign Tax Credit (FTC).
Documents Needed To Claim DTAA Benefits:
- 1040-NR return
- Rent receipts and the tax paid proof
- Bank statements for rental deposits.
Step-by-Step Checklist For RORs To Stay Compliant
Here is a table outlining the actionable steps you must take to stay compliant as a ROR-earning rental income source in the USA.
| Actionable Step |
Mandatory To Do |
Where To Report |
| Determine Residential Status |
Yes |
Indian Income Tax Return, Form 10E. |
| Report USA Rental Income |
Yes |
Schedule FSI |
| Disclose The USA Property |
Yes |
Schedule FA. |
| Claim US Tax Credit |
Yes |
Form 67 |
| Elect 871(d) for IRS Tax Benefits |
This is Optional |
Form 1040-NR |
| Maintain all the required documents in order. |
Yes |
For both the IRS and the Indian Income Tax |
Common Mistakes Returning RORs Make Regarding US Rental Income Disclosure
Here are some common mistakes individuals returning to India with ROR status make that you should be mindful of.
- Reporting rental income from the USA properties under "Other Sources" instead of "House Property".
- Fail to disclose their foreign assets in Schedule FA while filing their income tax return in India.
- Missing the deadline of Form 67 ultimately leads to the denial of tax credit.
- Not an option for 871(D), and end up paying a 30% flat tax deduction in the United States.
- Assuming you are an NRI upon returning to India, and that your foreign income will not be taxable.
The Bottom Line
Understanding the taxation implications as an individual returning to India with rental income in the United States is essential. Right from the DTAA to benefits under the India-US tax treaty to obtaining 871(d), understanding these details is crucial, so you do not end up paying taxes twice and more.
Well, to cut a long story short, what smart individuals returning to India with foreign income do is seek professional, expert-backed guidance from those with experience in NRI taxation and cross-border real estate.
One such professional is Savetaxs, which helps RORs and NRIs file accurate ITRs using Schedule FSI and FA. Additionally, our experts assist with Form 67 tax credit submissions, DTAA interpretation, US tax returns, and the 871(d) election.
Savetaxs has been serving NRIs and RORs for decades, and our statistics speak volumes about the kind of service we offer. Connect with us today and let us handle your rental income taxation issues as an individual returning to India from the USA.
Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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